SEBI warns exchanges for stricter norms while approving SME IPOs: Report

Market regulator the Security and Exchange Board of India (SEBI) has asked stock exchanges to be extra alert while approving initial public offers (IPOs) of small and medium enterprises (SMEs).

A Moneycontrol report quoting sources mentioned that SEBI directed BSE and NSE to enhance due diligence while examining the application, even at the cost of slowing the IPO approvals.

The report added that the market regulator’s advice to remain extra cautious on SME IPO approvals has led to the exchanges seeking more information from the applicants on the capex plans and purpose of the public issue.

The market regulator is reportedly also working on tweaking the eligibility criteria for SME IPOs to ensure only fundamentally strong companies make the cut. As per the current criteria, any SME making an operating profit in two out of the three years preceding the IPO document filing is eligible for listing on the SME platforms of the stock exchanges.

A total of 56 SMEs raised ₹1,633 crore from the primary market in the first quarter of this fiscal, according to Prime Database.

Several experts, including SEBI chairperson Madhabi Puri Buch, have raised concerns about potential manipulation in SME IPOs.

Earlier this month, the NSE issued a circular imposing a 90% cap on the listing price of shares under the SME segment compared to the IPO price. The decision was aimed at preventing a market condition in which a company's price begins sharply exceeding its intrinsic value.

"To standardise the opening price discovery/equilibrium price across exchanges during special pre-open session for initial public offer (IPO) for the SME platform, it has been decided to put an overall capping up to 90% over the issue price for SME IPOs," the NSE circular said.