MUMBAI: The markets watchdog Sebi will soon be coming out with a discussion paper aimed at finalising some measurers to tighten the regulatory framework for SME share sales through the IPO route.
SME issues, which are listed not on the mainboards of the BSE and NSE, have been under the regulatory scanner for some time now due to their unusually high subscriptions and listing gains apart from concerns related to the overall disclosure standards.
Since its launch in 2012, as of October 2024, there are over 400 small companies listed on the BSE’s SME Platform, making it the largest in SME exchange in the country and these 400 companies have market capitalization of over Rs 1 trillion.
The NSE’s small issue platform is called NSE Emrge has 397 companies listed since its launch in 2017. These companies have raised more than Rs 7,800 crore through their IPOs.
"We are working on a discussion paper on SME IPOs that should be coming out soon. What we have been observing for some time now is pretty disturbing," Sebi whole time member Ashwani Bhatia told a Morningstar event here Tuesday.
"There's concern regarding the IPO participation, particularly in SME IPO by investors. We and also the exchanges are closely monitoring SME listings so as to ensure that they don't engage in irrational exuberance by price manipulation or fraudulent trade practices," he said.
"... the number of times IPO issues are oversubscribed, the way market-making happens, the way underwriting are done... obviously we don't feel very comfortable about what's going on," Bhatia further said.
The comments assume significance as several SME IPOs that got subscribed in multiples of 100x with a couple of them getting subscribed over 1000 times. Such oversubscription trends have attracted a lot of retail investors to the segment even as the minimum trading lot size has been fixed at Rs 1 lakh for the segment.
One Delhi-based two-wheeler dealer Resourceful Automobile, also known as Sawhney Automobiles’, Rs 12-crore issue in August created national media headlines after the issue was overbought by 419 times or worth Rs 4,768.88 crore. Stated differently, the issue received bids for 40.76 crore shares against 10.25 lakh shares on offer.
"So, investors, especially retail ones, are advised to be extremely careful while investing in this segment. SMEs (play a) great role as far as the economy is concerned... but some of the things that we have seen do not give us much confidence. Obviously, some work needs to be done out here," said Bhatia, adding the regulatory objective is enhance transparency and bring in more uniformity when it comes to disclosures.
The current year has already set a record in terms of funds mobilised by SME issues. Data from Prime Database show that till September this year, around 205 SME issues, which cumulatively raised Rs 7,016 crore, significantly higher Rs 4,687 crore raised last year.