India’s securities regulator, SEBI, is considering introducing stricter rules for micro-cap firms launching Initial Public Offerings (IPOs) to reduce risks for investors. According to sources involved in the discussions, SEBI is reviewing multiple measures, including closer monitoring of how companies use the funds they raise and enhanced due diligence for merchant bankers managing these IPOs.
Among the proposed changes are requirements for a longer track record of profitability and more thorough scrutiny of financial statements. These measures come after several cases of fraud and stock-price manipulation in this market segment. However, SEBI is not looking to take over the listing approval process for small and medium enterprises (SMEs) from the National Stock Exchange of India (NSE) and BSE Ltd., despite some investors advocating for direct regulatory oversight.
Micro-listings have surged in popularity since the pandemic, with investor interest growing in tiny businesses that have the potential to expand as India’s economy accelerates. One notable example was a recent IPO by a motorcycle dealership with just two outlets and eight employees, which was oversubscribed by more than 400 times. This raised concerns about the quality of offerings in this niche market.
In response, SEBI has been encouraging caution among investors when dealing with SME firms. In August, the regulator halted the IPO of plywood maker Archit Nuwood Industries Ltd. due to concerns over its financial accounts. Additionally, the NSE imposed a 90% cap on listing gains in July to address potential issues with speculative trading.
Ashwani Bhatia, a SEBI whole-time member, mentioned that a discussion paper outlining stricter rules for SME IPOs is expected to be released by the end of the year.
IPO Updates
Meanwhile, seven IPOs, including Bajaj Housing Finance, closed yesterday and are set to be listed on September 16th. Starting from September 17th, a new pre-open mechanism will be implemented, and the pre-open market will settle between 9:35 and 9:45 AM. For IPOs closing today or later, this new mechanism will apply.
This move to enhance regulatory oversight reflects SEBI’s focus on safeguarding investor interests and maintaining the integrity of India’s growing SME market.
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