In July, the NSE imposed a cap of 90 per cent on the issue price of SME IPOs. However, continued vigilance is required.
The Indian stock markets continue to climb upwards. Since the beginning of this year, the BSE Sensex is up almost 14 per cent. Investor enthusiasm is, however, not confined to the larger companies, the smaller companies are also witnessing spectacular gains. The BSE Smallcap index has risen by 30 per cent year-to-date, while the mid cap index is up around 33 per cent. However, for some time now, there have been concerns that across segments, especially in the small and midcap space, certain stocks have been trading at valuations that are difficult to justify. In fact, earlier, some mutual funds had restricted flows into their small cap schemes. In March, Sebi Chairperson Madhabi Puri Buch had also spoken of the “froth” in certain market segments. But the euphoria continues. There are numerous examples of such investor exuberance. Recently Resourceful Automobiles, a Delhi-based company with only two showrooms and eight employees, came out with an initial public offering of Rs 11.99 crore. The issue was oversubscribed 418 times, with bids for around Rs 5,000 crore. In the case of Aesthetik Engineers, the company came out with an IPO of Rs 26.47 crore that was heavily oversubscribed with bids worth Rs 18,000 crore. Since April, 108 SME IPOs have hit the market — of these, 99 listed at a premium, and in some cases, there were huge gains.
Questions have been raised by market analysts over the participants in some of the heavily oversubscribed SME IPOs, about whether they are “causing frenzy” in the hope of eventually dumping their shares on “gullible retail investors”. The worry has been that considering the relatively smaller float available in the case of smaller companies, they may be easier to manipulate. Earlier this year, the SEBI Chairperson had spoken on the possibility of price manipulation in IPOs and trading of small and medium enterprises. On Wednesday, the stock market regulator also said that some SME companies and/or their promoters have post-listing painted an “unrealistic” assessment of their operations to create a positive narrative about the company. This is meant to induce investors to buy the stocks, allowing the promoters to offload their shares at higher prices. SEBI has asked investors to be “watchful”.
In July, the NSE imposed a cap of 90 per cent on the issue price of SME IPOs. However, continued vigilance is required. As millions of new investors enter the markets — as per a report, the total number of demat accounts has increased to 16.2 crore as of June — the guiding objective should be to safeguard investor interests and protect the integrity of markets.
© The Indian Express Pvt Ltd
First uploaded on: 31-08-2024 at 06:50 IST
