Sebi asks investors in SME segment to be watchful, accuses promoters of projecting ‘unrealistic picture’

In the ongoing frenzy seen across the Small and Medium Enterprises (SME) segment where all the fundamentals have gone for a toss, the capital market regulator Sebi on Wednesday urged investors to be watchful and exercise caution while investing in such securities.

Sebi said it has come to their notice that post listing, some SME companies and/or their promoters have been resorting to “certain means” that project an “unrealistic picture” of their operations.

It added that such companies/promoters make public announcements that create a positive picture of their operations. These announcements are typically followed up with various corporate actions such as bonus issues, stock splits and preferential allotments.

“The above actions create a positive sentiment amongst investors, which induces them into purchasing such securities. Simultaneously, this also presents an easy opportunity to the promoters to off-load their holdings in such companies at elevated prices… It can be seen that the modus operandi of these entities follows a pattern that is by and large similar to what has been mentioned above,” said Sebi in an advisory on Wednesday.

Sebi’s advisory to investors comes in the backdrop of the Rs 12 crore initial public offering (IPO) of Resourceful Automobile, a Delhi-based company with just two outlets and eight employees, which received bids worth close to Rs 4,800 crore. This exuberance made many investors question the existing fundamentals of the bull run and the regulator’s scrutiny in the segment.

Resourceful Automobile is not an isolated case. Of more than 160-odd IPOs on the SME platforms of the NSE and the BSE in 2024, 109 of them have received bids 100 times the shares on sale. In a couple of cases, the bids crossed 1,000 times the shares on sale.