The Securities and Exchange Board of India (SEBI) issued a warning on Wednesday concerning the surge in SME (Small and Medium Enterprises) stocks, particularly after the impressive subscription of the Resourceful Automobile IPO. The market regulator expressed concerns that some SME companies are using exaggerated promises to attract investors. SEBI highlighted that certain companies, after listing, have been providing unrealistic projections about their business operations. Additionally, some companies are overstating their business prospects to take advantage of investors.
SEBI also noted that after a sharp rise in stock prices, some companies are luring investors by offering stock splits and bonuses. The advisory pointed out that promoters of some SME companies are selling their shares at higher prices, capitalizing on the inflated stock values. SEBI warned that many of these practices are being facilitated by market operators and advised investors to exercise caution before investing in SME companies.
Over the past decade, SMEs have raised ₹14,000 crore through the SME platform, with ₹6,000 crore raised in the fiscal year 2023-24 alone.
Key Points from SEBI’s Advisory:
1. Unrealistic Business Projections: Some companies are making false projections about their business after listing.
2. Exaggerated Business Claims: Certain SME companies are overstating their business operations to attract investments.
3. Stock Splits and Bonuses: Companies are using these tools to lure investors after a surge in stock prices.
4. Promoter Share Sales: Promoters are selling shares at inflated prices, taking advantage of the situation.
5. Market Operators’ Role: Many of these practices are being facilitated by market operators.
6. Investor Caution: SEBI advises investors to be careful when investing in SME companies.
Why the Advisory Was Issued:
This advisory was triggered by the recent IPO of Resourceful Automobile, which received a staggering subscription of over 400 times. The company, which operates just two showrooms and has only eight employees, sought to raise ₹12 crore but received bids worth ₹5,022 crore. This raised eyebrows and led to widespread debate on social media platforms. The unexpected success of this SME IPO has become a hot topic, with experts and analysts weighing in on the matter.
SEBI’s advisory aims to protect investors and ensure transparency in the market, urging them to thoroughly research and exercise caution before investing in SME stocks.
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