Nearly Half Of Small IPOs Have Doubled Investors' Wealth On Debut Since July

To curb huge movements in the scrip's prices, India's biggest stock exchange placed an overall cap of 90% over the issue price of SME IPOs during listing in early July. This was done following the Securities and Exchange Board of India's comments that it would look into additional disclosures due to patterns of manipulation in this space.

Despite this, since the debut price cap came into effect, about 15 of the 33 listings, or nearly one in two companies, doubled in value on the day of the debut. While the pre-open price discovery is capped at 90% for these listings, the scrips rally another 10% to an upper circuit to double the issue price.

Throughout the year, about one in three companies has more than doubled the issue price, with a few companies seeing gains of over 300% during their debut. This suspicious listing activity has raised the alarm for the securities regulator.

"We do see patterns of price manipulation and certain patterns. The market has advised us on what to do to identify such cases and deal with them," the Securities and Exchange Board of India's Chairperson, Madhabi Puri Buch, said earlier.

The recently introduced measure to cap the debut price should address the issue of excessive activity, according to Kresha Gupta, director and fund manager at StepTrade Share Services Pvt. "This measure aims to make the initial pricing process fairer and more consistent across stock exchanges."

Before the cap was imposed, companies like Maxposure Ltd., GP Eco Solutions India Ltd., and Medicamen Organics Ltd. saw over 300% gains during listing day this year, while Winsol Engineers Ltd. shares posted a 411% gain on their debut day.

After the price cap of 90% became effective on July 4., Ganesh Green Bharat Ltd. recorded the highest gains of 109%, while most others were locked at 10% upper circuit after their pre-discovery price cap.

This unusual activity in the market comes amid reports that the market regulator is probing the activities of three to four IPO advisory firms that are active in the SME segment. This is done as SEBI received complaints that unregistered entities are helping companies gather massive responses and assuring them of windfall listing gains.

The enthusiasm for SME IPOs persists, but investors have become more cautious, Gupta said earlier. "They are now more aware of potential market manipulations and conduct thorough research before investing."

The total amount raised via the initial public offering in the SME space doubled in the first six months, compared to the same period last year with 117 companies participating, a surge of over 60%.

In terms of the number and total funds raised, the first quarter of the current financial year is the highest in the last five years, with 50 companies raising Rs 1,632.3 crore, according to data from Prime Database.

Meanwhile, the frenzy in this space is only limited to listing days, as shares tend to drop right after their debut. Almost half of the SME companies listed this year were trading below their listing day price, according to exchange data.

Many investors who missed out on the IPO would buy shares on listing day, sometimes driving prices without solid fundamental backing, Gupta said. "As a result, prices eventually fell when there were insufficient buyers."

Despite the volatile global stock markets, India's primary market continues to be robust, according to Pantomath Capital Advisors Pvt. In the first week of August, four mainboard companies launched successful IPOs worth over Rs 11,850 crore. "This trend looks set to continue, with 25 more companies, already approved by SEBI, planning to enter the market to raise about Rs 22,000 crore in the coming few weeks."