Will cap on SME listing gains check exuberance?
To moderate the overwhelming euphoria in the SME market, both the regulator and exchanges have decided to implement concrete measures. With most companies’ stocks delivering over 200 per cent returns on listing day, the National Stock Exchange announced on Thursday a cap on maximum listing gains at 90 per cent over the IPO price.
“To standardise the opening price discovery/equilibrium price across exchanges during special pre-open session for initial public offer (IPO) for the SME platform, it has been decided to put an overall cap of up to 90 per cent over the issue price for SME IPOs,” NSE said in a statement.
NSE Emerge and BSE-SME were launched in 2012 to help smaller companies raise funds from capital markets. An issuer company whose post-issue paid-up capital is not more than ₹25 crore, having positive networth and net tangible assets of ₹1.5 crore is eligible to list its securities on the SME platform.
The market lot has been fixed in such a way that it requires a minimum of ₹1 lakh investment. For a company that fixes issue price at or below ₹14 the market lot is 10,000, and for price above ₹1,000, the lot size is 100.
Speculative frenzy
Now, there are fears among the investment fraternity that SME platforms, of late, have become playgrounds for speculative frenzy.
For instance, the ₹41.26-crore IPO of Kolkata-based Nephro Care India, which featured veteran banker Deepak Parekh as investor, created history by drawing bids worth over ₹20,000 crore. The IPO on the NSE-SME platform received an overwhelming response from all categories of investors and was subscribed 666 times. While the qualified institutional buyer portion was subscribed 245 times, the HNI quota was subscribed 1,787 times and the retail investors’ quota 634 times.
Among other IPOs that saw overwhelming response recently were Divine Power Energy (400 times) and Shivalik Power (257 times). Medicamen Organics, which tapped the capital market to raise ₹10.54 crore, saw over-subscription of 996 times, per data available on chittorgarh.com, an IPO tracker website.
As investor appetite for quick profits increases, more companies are tapping into the platform. In 2024, 121 companies have already listed on the SME platforms, triple the number on the main board, which had 38 issues.
Most of these companies saw an overwhelming response from both non-institutional (HNIs) and small investors. However, the worrying factor is that in some cases retail investors’ interest is higher than HNIs. Last September, Kahan Packaging, a little-known Mumbai based firm that manufactures polymer-based woven products, received bids for over 1,044 times from retail investors. The mad rush has also resulted in strong listing gains, defying fundamentals of companies.
Call for caution
According to chittorgarh.com, of the 121 companies, 106, or 87 per cent of the issues, were listed with premium.
Last year, the exchanges had extended the short-term additional surveillance measure and trade-for-trade settlement framework to SME stocks, to check the exuberance. However, as the SME stocks continued to remain buoyant, the NSE has now gone one step further to cap gains at 90 per cent.
Though free market proponents will not agree with any regulatory control over price movements, extreme conditions need some harsh decisions. Hopefully, once retail investors understand the risks involved in short-term betting and start focussing on goal-based long term investments, the exchanges can do away with this regulation. Till such a time, one needs to be cautious and vigilant.