Small and medium-sized enterprises (SME) IPO stocks have been under selling pressure after capital markets regulator Securities and Exchange Board of India (SEBI) chairperson Madhabi Puri Buch made remarks earlier this week that instances of price manipulation were seen in the SME segment. The S&P BSE SME IPO index has lost around eight per cent this week.
SEBI chair said that the regulatory body intends to impose more disclosures as a first step with regard to SME IPOs, according to a report by CNBC-TV18. However, market experts and analysts still believe that SME IPOs have been resilient despite market volatility in the long run.
‘’While SEBI has raised concerns about potential price manipulation in the SME segment, it's important to not lose sight of the positives that this sector offers. SME Capital markets represent an important opportunity for smaller companies to access equity capital, a critical resource that was previously challenging to secure,'' said Manick Wadhwa, Director at SKI Capital.
‘’These enterprises, despite their smaller IPO sizes, have shown resilience and potential, with several noteworthy companies making successful debuts on SME exchanges. While the smaller size of SME IPOs does make these companies more susceptible to market manipulation, it's crucial to highlight the broader context of opportunity and growth,'' added Wadhwa
Market analysts also say that recognizing the importance of transparency and investor protection, the SME exchanges have proactively enhanced disclosure norms in the offer documents. ‘’Investors, therefore, should maintain confidence in the potential of high-quality SMEs, viewing them as valuable components of a diversified investment portfolio, despite the inherent risks associated with their smaller scale'', suggested Wadhwa.
Buch said that SEBI keeps a close eye out for instances of price manipulation during trading operations as well as during IPOs, particularly with regard to SME IPOs. She also emphasised the need for more market openness and monitoring amid doubtful trdaing operations.
The SEBI chairman claimed that there was no indication of coordinated attempts in any recent instance. She assured that authorities are consistently exchanging information, enabling independent measures to be implemented in order to preserve market integrity. SEBI is also seeking the need to apply algorithm-based compliance checks to all market intermediary categories.
‘’There is something unusual about the way small and medium-sized companies list, perform, and receive subscriptions for their IPOs. It is easier to manipulate a SME than a mainboard simply because the number of shareholder in the SME is so limited. That is a focal point of the whole matter,'' said Arun Kejriwal, founder of Kejriwal Research and Investment Services.
Over the previous week, the index plunged by 8.66 per cent. The index rose by 12.53 per cent in the previous year and 14.23 per cent over the previous quarter, according to Trendlyne data.
Domestic equity benchmarks Nifty 50 and Sensex fell over one per cent each today, logging their worst session in over two months retreating from the record high mark hit on March 11, driven by massive selling across counters. The drop in smallcaps and midcaps extended on Wednesday over stretched valuations.
The 30-share BSE Sensex lost 906.07 points or 1.23 per cent to settle at 72,761.89. During the day, it plunged 1,152.25 points or 1.56 per cent to 72,515.71. This comes a day after the US inflation saw an uptick in February, raising concerns that the US Federal Reserve may postpone rate cuts beyond June. However, India's retail inflation eased to 5.9 per cent in February.
The market capitalisation of BSE-listed companies erased by ₹13,47,822.84 crore to ₹3,72,16,602.67 crore. The Nifty 50 slumped 1.51 per cent to 21,997.70, closing below the 22,000 mark for the first time in March. The domestically focussed small- and mid-caps dropped further by 5.28 per cent and 4.40 per cent, respectively.
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