NSE to cap SME listing gains to 90% of issue price

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The National Stock Exchange will apply a cap of 90 per cent to all small and medium enterprises (SME) stocks that list on its platform in a bid to restrict runaway gains and bring more stability to the opening price discovery process for such stocks.

“To standardise the opening price discovery/equilibrium price across exchanges during the special pre-open session for the initial public offer (IPO) for the SME platform, it has been decided to put an overall cap up to 90 per cent over the issue price for SME IPOs,” NSE said in a circular on Thursday.

This means that gains for an SME stock with an issue price of ₹100 will be limited to ₹90 on debut.

“The cap can potentially reduce volatility and speculation in the opening price of SME stocks. Previously, there was no cap, and some SME IPOs would see their opening price surge significantly above the issue price. This could be due to factors like hype or a short supply of shares. The cap can help moderate such price swings,” said Amit Goel, Co-Founder & Chief Global Strategist, Pace 360.

The move will be a dampener for those who want to exit on day one after pocketing abnormal returns.

It is not uncommon for SME stocks to see a jump of over 100 per cent on listing day. In this month alone, Diensten Tech (152 per cent), Divine Power Energy (280 per cent) and Shivalic Power Control (226 per cent) have seen a huge jump in prices on debut.

“This will help put the brakes on the high listing gains that are being seen irrespective of the fundamentals,” said Deepak Jasani, Head of Retail Research at HDFC Securities.

He said that investors were now blindly applying to SME IPOs, going by past returns and disregarding the risk factors and rich valuations.

“It’s a vicious cycle,” said Jasani. “The subscription levels are high, which leads to premium debuts. This then means the next IPO also does well, and so on. It’s a bubble, and more measures will be required to bring things under control.”

SEBI is reportedly looking to tighten the norms for these listings following certain complaints of misuse. For instance, the minimum issue size could be increased to ensure that only serious companies have access to the capital markets.

The companies are currently required to have a post issue capital base of ₹25 crore.