SEBI warns stock exchanges to be ‘extra cautious’ while approving SME IPOs: Report

Capital markets regulator Securities and Exchange Board of India (SEBI) has directed the Indian stock exchanges to exercise extra caution when approving documents for initial public offers (IPOs) of small and medium enterprises (SMEs). 

According to a report by the news website Moneycontrol, the capital market watchdog has told the bourses to enhance the level of due diligence done while approving the documents, even if it slows the pace of approvals for SME IPOs.

Also Read: SEBI directs NSE to review transactions between Linde India and Praxair India amid shareholder complaints

Earlier this month, NSE had imposed a 90 per cent price control cap on SME IPOs amid rising concerns about froth in lesser-known SME stocks. 

NSE imposes price control cap of 90% on SME IPO

“To standardise the opening price discovery and equilibrium price across exchanges during the special pre-open session for IPO on the SME platform, it has been decided to put an overall capping of up to 90 per cent over the issue price for SME IPOs,” said NSE in a circular.

The market regulator is already working on strengthening the eligibility criteria for the segment to ensure that fundamentally strong companies enter the market through the SME platform, launched in 2012.

Also Read: NSE imposes 90% price control cap on opening price of SME IPOs

Earlier this year, SEBI chairperson Madhabi Puri Buch said some issuers and bankers were misusing the framework provided for SME listing. According to Buch, SEBI is collecting evidence following complaints of price manipulation in the segment.

Around 120 companies have been listed in the SME segment on both stock exchanges so far in 2024. Among these, about 35 companies saw listing day gains of 99 per cent to 415 per cent. SEBI barred three SME companies from capital markets for misusing funds raised via public offers. According to SEBI, these companies used funds for purposes other than those specified, misstated facts in offer documents and allegedly manipulated financial statements. 

SEBI said in one of its orders that retail investors must exercise a certain level of due diligence while investing in SME companies and not be swayed by "seemingly attractive returns that may quickly come their way."

Also Read: What lies ahead for SME IPOs after SEBI remarks on price manipulation? Experts weigh in