Soaring subscription figures and outsized listing gains in SME IPOs have ignited a fierce debate over the market’s integrity, pitting renowned investors against each other. Ashish Kacholia and Vijay Kedia are at odds, with Kacholia arguing against a heavy-handed regulatory approach and Kedia warning of potential market manipulation.
Kacholia, an advocate for the SME ecosystem, argued that recent scrutiny and regulatory warnings are misguided. He believed that the current approach of penalizing the entire SME market for the actions of a few companies is detrimental.
"We shouldn’t throw the baby out with the bathwater," Kacholia asserted. Instead, he advocated for a regulatory framework that promotes transparency and due diligence. He said that investors are smart and they do their homework. "Regulation should be a light touch with adequate disclosures and stringent penalties for wrongdoers."
Kacholia recalled the days when small companies like Suven Pharma and Nagarjuna Construction, now industry giants, accessed capital markets with minimal paperwork. He views the SME platform as a crucial avenue for emerging businesses to secure funding and drive innovation. However, he criticised the recent move by the NSE to require positive Free Cash Flow to Equity (FCFE) for at least two of the three previous years, questioning how rapidly growing companies can meet such criteria.
In stark contrast, Vijay Kedia has voiced concerns about the potential for manipulation within the SME IPO space. Kedia has claimed that "nine out of ten stocks in the SME space are manipulated". He believes that both promoters and investors may be engaging in dubious practices, a sentiment echoed by SEBI’s recent cautionary notes about unrealistic post-listing projections and manipulative tactics like bonus issues and stock splits.
Kedia’s concerns are bolstered by SEBI’s latest warning, which urges investors to be wary of tips and social media hype surrounding SME stocks. The regulator’s recent measures, including a 90 percent cap on opening prices for SME IPOs, aim to curb excessive speculation and maintain market integrity.
On August 28, the capital markets regulator issued an advisory cautioning investors regarding SME investing, even as small company IPOs continue to see massive oversubscription. SEBI has advised investors to be wary of the companies painting an unrealistic positive picture and also cautioned investors to not fall for social media tips or rumours.
The IPO of Resourceful Automobile is a perfect case in point. Running a modest operation with just two Yamaha showrooms and eight employees, the company attracted bids worth nearly a whopping Rs 5,000 crore — 420 times its Rs 12-crore target, despite its relatively small scale and past financial losses.
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