The unheard euphoria surrounding investment in the SME exchange following resounding oversubscription in recent SME IPOs has forced market regulator SEBI to extend additional surveillance mechanisms on SME exchanges.
NSE Emerge and BSE SME have announced a short-term additional surveillance mechanism that will kick in if the SME stock price moves up or down 25 per cent in five trading days and 25 clients garner over 30 per cent of the combined volume of BSE and NSE in 15 trading days.
The pre-emptive surveillance measure is aimed at enhancing market integrity and safeguarding investors interest, said the exchange. The new framework will come into effect from October 3.
Srivari Spices and Foods, which issued shares at ₹42 a piece in a recent IPO, is currently trading at ₹107, while Meason Valves, which was priced at ₹102 a share in the IPO, closed with a gain of 3 per cent at ₹232 on Tuesday.
The rally in the SME secondary market follows a huge oversubscription in the primary issuances of these stocks. Chennai-based Basilic Fly Studio recently mopped up an all-time high investment interest of ₹14,169 crore against the issue size of ₹66.35 crore. The shares, which were issued at ₹97 in the IPO, are currently trading at ₹286.
Of 135 SME IPOs so far this year, 85 issues have gained sharply after listing, while 20 have tumbled.
Vinod Nair, Head of Research, Geojit Financial Services, said the extension of ASM deployment into SME stocks will have a detrimental effect on the performance of the category.
Rally in SMEs are triggered by high speculation in small-sized IPOs of less than ₹100 crore with multiple subscription bases, and the issuances have grown in the last 2–3 years, he added.
Manish Chowdhury, Head of Research at StoxBox, said most of the SME stocks have garnered huge investor interest after their splendid returns, especially on their listing day.
However, he said investors should understand the risk in SME stocks due to the larger trading lot size, less liquidity, small scale of company operations, and limited financial performance track record.
Chokkalingam G, founder of Equinomics Research, said it is a much-needed move to protect retail investors’ wealth as there is a bubble in some of the SME stocks, which are trading over 50 times their price to earnings multiples, and investors are lapping it up without caring about valuations.
Shrey Jain, founder of SAS Online, said the regulatory measures will help bring about stability in the price movement of these stocks, as most of the time the pump and dump strategy is used to manipulate investors.