A day after Securities and Exchange Board of India (Sebi) chairperson Madhabi Puri Buch expressed concerns over “signs of manipulation” in the small and medium scale enterprises (SME) segment, the SME initial public offer (IPO) index fell 4.67%—a clear signal of the nervousness among investors betting on these stocks. In the past one year, the SME IPO segment has been booming with many small offers seeing subscriptions of even 500x and 1,000x, indicating that many short-term investors have been looking to make hay while the sun shines. Since the launch of the platform in FY13, a total of Rs 10,500 crore was raised till FY23. In FY24 itself, 183 companies have raised Rs 5,565 crore—over 50% more than the entire money raised in over a decade.
From the perspective of the stock market investors, the growth in the SME segment should be good news. The deepening of the market implies that more players are participating. At the same time, it’s a fact that the chances of getting multi-baggers improve exponentially. There is a high element of risk as well. There are good chances that the stock prices are in their teens, making them easy to manipulate—something that the market regulator has been worried for quite some time. These stocks usually trade or even during the IPO, in lots of a minimum of Rs 1-1.5 lakh. Consequently, there is some entry barrier.
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To temper the enthusiasm further, last October, Sebi asked the BSE and NSE to put these stocks under additional and graded surveillance measures. However, that did little to curb the exuberance Sebi has no doubt attempted to provide a listing environment for SMEs that is more facilitative, and thus less regulated than listing for the mainboard. This is because SMEs may find it hard to comply with many of those requirements that are there for the mainboard companies. However, the feedback has been that some entities are misusing this facilitative framework.
Also Read Don’t skirt IPO, Tata Sons Don’t fix it if it’s not broken IWD’24: Women entrepreneurs from Tier-2 Tier-3 cities of India are building successful businesses with e-commerce Have NPAs really declined? Under such circumstances, there is no doubt that Sebi has to take pre-emptive action, which is not a surprise as many market participants have been expecting the ‘free-for-all’ party to end for quite some time now. Buch said as much when she said, “We are able to see certain patterns. However, as per our regulation, the way that we need to construct the entire case, we do need to take some time to do that in a robust manner.” But there is an important catch here. Punishing one or two big players for manipulating stock prices can set examples that no one is above the law—both the US Federal Reserve and Securities Exchange Commission do it regularly by fining some of the big names in the financial sector. But bringing blanket laws or punishing the entire industry will have the undesirable effect of freezing the entire segment. After all, the existence of an SME exchange platform is extremely important since there are many small businesses which require funds for growth. And both the corporate bond market and bank loans will be too expensive for them. Globally, there are many exchanges which support small companies in their respective countries. Instead of shooting an arrow to kill a mosquito, Sebi should go for punishment of only a select few.
A day after Securities and Exchange Board of India (Sebi) chairperson Madhabi Puri Buch expressed concerns over “signs of manipulation” in the small and medium scale enterprises (SME) segment, the SME initial public offer (IPO) index fell 4.67%—a clear signal of the nervousness among investors betting on these stocks. In the past one year, the SME IPO segment has been booming with many small offers seeing subscriptions of even 500x and 1,000x, indicating that many short-term investors have been looking to make hay while the sun shines. Since the launch of the platform in FY13, a total of Rs 10,500 crore was raised till FY23. In FY24 itself, 183 companies have raised Rs 5,565 crore—over 50% more than the entire money raised in over a decade.
From the perspective of the stock market investors, the growth in the SME segment should be good news. The deepening of the market implies that more players are participating. At the same time, it’s a fact that the chances of getting multi-baggers improve exponentially. There is a high element of risk as well. There are good chances that the stock prices are in their teens, making them easy to manipulate—something that the market regulator has been worried for quite some time. These stocks usually trade or even during the IPO, in lots of a minimum of Rs 1-1.5 lakh. Consequently, there is some entry barrier.
To temper the enthusiasm further, last October, Sebi asked the BSE and NSE to put these stocks under additional and graded surveillance measures. However, that did little to curb the exuberance Sebi has no doubt attempted to provide a listing environment for SMEs that is more facilitative, and thus less regulated than listing for the mainboard. This is because SMEs may find it hard to comply with many of those requirements that are there for the mainboard companies. However, the feedback has been that some entities are misusing this facilitative framework.
Under such circumstances, there is no doubt that Sebi has to take pre-emptive action, which is not a surprise as many market participants have been expecting the ‘free-for-all’ party to end for quite some time now. Buch said as much when she said, “We are able to see certain patterns. However, as per our regulation, the way that we need to construct the entire case, we do need to take some time to do that in a robust manner.” But there is an important catch here. Punishing one or two big players for manipulating stock prices can set examples that no one is above the law—both the US Federal Reserve and Securities Exchange Commission do it regularly by fining some of the big names in the financial sector. But bringing blanket laws or punishing the entire industry will have the undesirable effect of freezing the entire segment. After all, the existence of an SME exchange platform is extremely important since there are many small businesses which require funds for growth. And both the corporate bond market and bank loans will be too expensive for them. Globally, there are many exchanges which support small companies in their respective countries. Instead of shooting an arrow to kill a mosquito, Sebi should go for punishment of only a select few.
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Free-for-all must end: The guilty must be punished, but Sebi should take care not to stifle SME fund-raising via IPOs
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13.03.2024
A day after Securities and Exchange Board of India (Sebi) chairperson Madhabi Puri Buch expressed concerns over “signs of manipulation” in the small and medium scale enterprises (SME) segment, the SME initial public offer (IPO) index fell 4.67%—a clear signal of the nervousness among investors betting on these stocks. In the past one year, the SME IPO segment has been booming with many small offers seeing subscriptions of even 500x and 1,000x, indicating that many short-term investors have been looking to make hay while the sun shines. Since the launch of the platform in FY13, a total of Rs 10,500 crore was raised till FY23. In FY24 itself, 183 companies have raised Rs 5,565 crore—over 50% more than the entire money raised in over a decade.
From the perspective of the stock market investors, the growth in the SME segment should be good news. The deepening of the market implies that more players are participating. At the same time, it’s a fact that the chances of getting multi-baggers improve exponentially. There is a high element of risk as well. There are good chances that the stock prices are in their teens, making them easy to manipulate—something that the market regulator has been worried for quite some time. These stocks usually trade or even during the IPO, in lots of a minimum of Rs 1-1.5 lakh. Consequently, there is some entry barrier.
Also ReadPolitical uncertainty hits J&K
To temper the enthusiasm further, last October, Sebi asked the BSE and NSE to put these stocks under additional and graded surveillance measures. However, that did little to curb the exuberance Sebi has no doubt attempted to provide a listing environment for SMEs that is more facilitative, and........
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