SME IPO frenzy continues with 50 companies filing papers

Notwithstanding the concerns all around, including the market regulator SEBI, 50 small and medium enterprises have filed papers with NSE Emerge and BSE SME last month to tap the market for raising capital.

The SMEs rush to tap the market was on top of about 55-70 companies that will hit the market in this month to raise about ₹500 crore.

In last eight months, about 165 SME companies have raised a whopping ₹5,894 crore, against 99 companies raising ₹2,589 crore in the same period last year.

Investors are betting big on SME initial offers on the back of buoyancy in the main bourse and tremendous profits earned in the previous IPOs, even as veterans and regulators have raised a red flag over fear of missing out syndrome in the equity market.

• Also read: NSE lists out free cash flow criteria for SME IPOs

The BSE SME IPO index has zoomed 90 per cent in the last eight months to 108,064 points against 56,910 points in January.

VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services said while SMEs, which contribute substantially to GDP and employment generation, getting access to the capital market is a positive, any excesses need to be curtailed in the interest of investors.

SMEs without any track record and sound financials are getting oversubscribed many times, driven by retail investors chasing listing gains need to be checked, he added.

• Also read: SEBI warns investors against unrealistic protrayal of SME IPOs 

Surge in listings

Despite stern warnings by SEBI, run-away oversubscription of lesser known companies have become the order of the day.

Late last month, the IPO of Resourceful Automobile, a Yamaha retail outlet with two showrooms and eight employees, garnered massive bids worth ₹4,800 crore for an offering of just ₹12 crore.

Early this month, the ₹8-crore issue of Boss Packing Solutions — which supplies packaging machines, labelling, capping, and filling equipment — received bids worth ₹1,073 crore.

• Also read: NSE’s cap on SME IPO to rein-in volatility, over subscription

Ashwani Bhatia, Whole Time Member, SEBI, said the market regulator will soon come out with a consultation paper on the SME listing process which will propose tweaks for SME IPO norms pertaining to stock exchanges, merchant bankers and others.

Vaibhav Porwal, Co-founder, Dezerv, said the recent surge in SME stocks and strong listings gains in some companies are largely driven by high market liquidity chasing less liquid SME stocks as investors eye high returns disregard of underlying risk.

While this trend might persist in the short term, risks like market corrections and regulatory interventions could temper the frenzy in the market, he said.