SME IPOs: SEBI discussion paper to be out soon to tighten framework

Ashwani Bhatia, Wholetime member, SEBI

The Securities and Exchange Board of India (SEBI) will soon release a discussion paper aimed at tightening the regulatory framework for SME IPOs, which have been under the scanner for unusually high levels of subscription and listing gains apart from concerns related to the overall disclosure standards.

"We are working on a discussion paper on SME IPOs that should be coming out soon, but what we have seen is pretty disturbing," said SEBI wholetime member Ashwani Bhatia, while speaking at Morningstar Investment Conference.

"There's concern regarding the IPO participation, particularly in SME IPO by Indian investors, which has raised concerns for us. SME listings are closely monitored by exchanges and SEBI to ensure they don't engage in irrational exuberance price manipulation or fraudulent trade practices," he added.

"... the number of times IPO issues are oversubscribed, the way market making happens the way underwriting happens... obviously we don't feel very comfortable about what's going on," he further said.

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This assumes significance as the current calendar year has seen several SME IPOs that got subscribed in multiples of hundreds of times with a couple of offerings getting subscribed over 1000 times.

Such subscription 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.

"So, investors, retail ones, especially, 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 while highlighting that the focus would be on enhancing transparency and bringing in more uniformity especially in the context of disclosures.

The current calendar year has already set a record in terms of funds mobilised by way of SME IPOs. Data from Prime Database shows that in CY24 till September, around 205 SME IPOs were launched with the cumulative find raising pegged at Rs 7,016 crore -- significantly higher than last year's Rs 4,687 crore.

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