'SME IPOs are highly risky, investors should take educated decisions and not depend on tips': NSE's Chauhan

The role of exchanges and regulators, according to Chauhan, is to facilitate and regulate the market, but ultimately, the responsibility lies with investors. “It's your choice, it's your money. You need to study well. Media must also play its part,” he said while responding on the concerns in the market around SME IPOs, which has caught everyone’s attention, including that of the Securities and Exchange Board of India (SEBI).

In a recent conference, SEBI's whole-time member Ashwani Bhatia said that the regulator is working on a discussion paper to look into these concerns.

“The way retail participation is happening, the number of times IPO issues are oversubscribed, the way market making happens, the way underwriting happens, obviously we do not feel very comfortable about what is going on,” said Bhatia.

He further added that SME listings are closely monitored by exchanges and SEBI to ensure they do not engage in irrational exuberance, price manipulation or fraudulent trade practices.

Meanwhile, Chauhan reflected on the historical participation of these smaller companies. “Old-timers would recall 1993-1994 when a lot of small companies came, raised funds, and then disappeared,” he said adding that such firms “are now known as vanishing companies.”

In response, both stock exchanges halted accepting prospectuses from small companies in the late 1990s. However, in 2010, a government committee recommended allowing small companies to raise funds again. “We were reluctant,” Chauhan said. After much debate, both exchanges launched the SME segment in 2012.

Since then, over 1,000 companies have listed on the SME board. But Chauhan cautioned, “SMEs are highly risky. Many don't have stable business models, and while some may fail, those that survive could offer much larger returns.” He pointed out that even Infosys started as an SME, with its IPO initially struggling before eventually taking off.

Data from Prime Database shows that in 2024 (till September), around 205 SME IPOs were launched with the cumulative fund raising pegged at around Rs 7,000 crore.

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