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On Thursday, the listing of Resourceful Automobile shares turned out to be a dampener for investors who poured money into the initial public offer (IPO). The issue, which made waves a few days ago with its Rs 12 crore issue being oversubscribed 419 times, listed flat at Rs 117 -- the same as the issue price.
The IPO, which is classified under the Small and Medium Enterprises (SME) segment, should have raised eyebrows, given that all the company owns is two outlets and eight employees (as stated in media reports)! Yet, prior to listing, the shares were trading at 89 per cent premium in the grey market!
This is not the only case. Moneycontrol’s Ravindra Sonavane in this article about the SME IPO frenzy points out that 11 firms listed with negative returns so far in 2024. Of those that initially listed with premiums between 10-99 percent, 13 have since erased their gains and are now trading in the red. Evidently, it means that investors’ pockets have been burnt.
So far this calendar year has seen a record 173 SME IPOs that have tapped totally Rs 5,965 crore from retail investors. Market veterans reckon that the rising tide in equities is perhaps making investors feel the Fear of Missing Out (FOMO). Besides, the BSE SME IPO index has rallied 195 per cent, which is way higher than the BSE Mid-cap and Small-cap indices that gained 56 percent and 52 percent, respectively.
Analysing this trend, my colleague Shishir Asthana in this article highlighted that merchant bankers' ingenuity and market players' flexibility to manoeuvre in companies with small equity capital will likely keep the SME market thriving.
The market regulator SEBI’s concerns are justified. But given that equities are known to be the riskiest assets, SEBI has done the best it could. In a recent notification, it has put out a cautionary message for investors, highlighting the modus operandi of some of the SME IPOs to lure investors and in the final run, offload their stake in the company leaving investors holding the baby (company).
Yet, in such frenzied bull runs in equity markets, it is not uncommon that the fundamentals of a company are brushed aside. Lessons are seldom learnt, be it from the examples of the Tulip Mania in the 1600s, South Sea bubble in the 1700s or the more recent cryptocurrency rise and crash! The market regulator has raised red flags, but the SME party may continue!
Investing insights from our research team
Control Print: Is long-term ambition hurting the stock’s journey?
Fertiliser stocks: Why a normal monsoon may not bring all the cheer
Power Grid: Strong project pipeline, likely execution pick-up to drive stock higher
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Indian Public Equity Markets: When in doubt, stay away
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Personal Finance
Technical Picks: Infosys, Bharti Airtel, Bank Nifty, and Datamatics (These are published every trading day before markets open and can be read on the app).
Vatsala Kamat
Moneycontrol Pro
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