“It has come to the notice of SEBI that, post listing, some of the SME companies and / or their promoters have been resorting to certain means that project an unrealistic picture of their operations. Such companies / promoters have been seen to make public announcements that create a positive picture of their operations. These announcements are typically followed up with various corporate actions such as bonus issues, stock splits, preferential allotments, etc,” Sebi said.
The regulator said such corporate actions create positive sentiment among investors, leading them to purchase these securities. At the same time, this provides promoters with an easy opportunity to offload their holdings at elevated prices.
Urging investors to be careful and watchful of the aforesaid patterns and exercise caution while investing in SME stocks, Sebi said one should not rely on unverified social media posts and not invest based on tips and rumours.
The advisory comes after the SME IPO of Resourceful Automobile, which has just two Yamaha dealership showrooms and eight employees, managed to get bids worth Rs 2,700 crore for an issue size of just Rs 12 crore.Developed as an alternative source of raising funds for emerging businesses, the SME platform of stock exchanges has seen amassing funds worth over Rs 14,000 crore in the last decade, of which Rs 6,000 crore was raised during FY24.SME IPOs are being fancied on Dalal Street by both small and HNI investors as many of them have given multibagger returns in the recent past. Some SME stocks even doubled on listing day itself till NSE imposed a cap of 90% recently.The recent surge in SME stocks and strong listing gains are driven by high market liquidity, FOMO effect and retail participation.
“While this trend might persist in the short term, risks like market corrections and regulatory interventions could temper the frenzy in the market. Investors should exercise caution and focus on fundamentals, as the SME stocks could correct sharply if sentiment shifts,” said Vaibhav Porwal, Co-founder, Dezerv.
While SMEs, which contribute to India’s GDP and employment generation, getting access to the capital market is a positive and desirable development, IPOs of SMEs without any track record and sound financials are getting oversubscribed many times, driven by retail investors chasing listing gains.
“These are excesses that need to be checked. Experience tells us that speculative excesses lead to tears,” V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.