One-third of the 266 small and medium enterprises (SMEs) that have listed since the beginning of last year are currently trading in the red. Out of the 88 companies in this category, 36 had a subscription of over 100 times. Magenta Lifecare, which had a subscription of over 1000 times, is now trading down over 30 per cent from its offer price.
Experts attribute the strong subscription numbers of SME IPOs to their low IPO size, active grey market, concentrated holdings, and slightly more aggressive pricing compared to mainboard issues. However, market analyst Deepak Jasani noted that sustaining prices at higher levels has become challenging due to the current bearish sentiment in smallcaps. He also highlighted that attracting new investors at higher prices has proven difficult, leading to corrections in SME stock valuations.
According to Jasani, grey market premiums have failed to accurately project prices, resulting in IPOs that either list at a discount or fall below the offer price soon after listing. Despite these challenges, the SME index has outperformed other key benchmark indices, with 62 out of the 266 listings since last year seeing gains of over 100 per cent.
The BSE SME IPO index has recorded a 75 per cent increase in the past year, compared to returns of 3.5 per cent for the BSE IPO index, 7.4 per cent for the BSE Smallcap index, and 8 per cent for the Sensex. SEBI recently tightened rules for SME IPOs, requiring firms to have an operating profit of at least ₹1 crore for two out of the three previous financial years to file for an IPO.
In recent regulatory actions, SEBI banned SME firm Kalahridhaan Trendz and its promoters from the securities market for violating disclosure rules. Additionally, the regulator cancelled the SME IPO of Trafiksol ITS Technologies in December, citing questionable dealings with a ‘shell entity’ and ordering the company to refund the money to investors.
In conclusion, while SME IPOs have seen high subscription numbers, the current market conditions and regulatory actions have highlighted the challenges faced by these companies in maintaining their valuation and attracting new investors.
