SME IPO: NSE caps listing gains to 90%; here's what it means for investors

National Stock Exchange (NSE) on Thursday announced to introduce an overall capping of 90 per cent on the opening price or equilibrium price discovered during a special pre-open session for initial public offer (IPO) on the NSE Emerge  (SME) platform of the exchange.

 

In easier terms, it means that the listing price of a debutant stock on NSE Emerge platform can not be listed at a premium more than 90 per cent over its issue price, at least on the listing, but the price may move higher eventually. Aimed to curb the volatility in the SME issues, the move comes into effect from immediate effect with this circular.

 

Market participants have welcomed the move by the leading Mumbai-based bourse, and said that the move will limit the scope of speculation in the SME space. Capital market regulator Sebi has been skeptical of froth in the SME space time and again and Sebi chief Madhabi Puri Buch has been highlighting the same.

 

The move is a positive one as it will help curb excessive speculation, said  Sunil Shah, Group CEO and Director at Khambatta Securities. "Some recent SME issues have seen very high listing gains which surely poses the question of speculative activity around those stocks. This cap imposed by the NSE will help reduce speculative activity and volatility in SME listings," he said.

 

Manish Chowdhury, Head of Research at StoxBox believes the capping on SME price opening would bring some sanity to the frenzy in the SME IPO segment which has been driving all classes of investors. "Chowdhury also advised investors to consider SME issues on their fundamentals, growth outlook for business and valuations, instead of chasing the quick buck momentum.

 

"Considering the small size of the companies, limited information in the public domain and higher risks associated with these issues, our sense is that the step of capping is a step in the right direction and would protect investors from chasing these IPOs for listing gains," he added.

 

Shares of Nephro Care India will be listed on Friday, July 5. Ambey Laboratories, whose IPO is underway, may get listed on July 11. Ganesh Green Bharat Limited and Effwa Infra & Research Limited IPO are two other SME IPOs hitting NSE Emerge this week. The two IPO listings are likely on July 12.

 

Aditya Agarwala, Co Founder, Head of Research and Investment at Invest4edu said the moves comes after Sebi's strictness on the NSE space as some entities were abusing the mechanism for the excessive gains. "The move comes after spectacular fund raising by SME companies in the first half 2024, where already Rs 3,000 crore have been raised," he said.

 

This rule is intended to bring more stability to the opening price discovery process for SME stocks. The new rule can potentially reduce volatility and speculation in the opening price of SME stocks. Previously, there was no cap, and some SME IPOs would see their opening price surge significantly above the issue price, said Amit Goel, Co-Founder & Chief Global Strategist at Pace 360.

 

"Moreover, Investors who aim to buy IPO shares and then quickly resell them at a high opening price might find it more challenging with the new cap. Because the opening price is now restricted to 90 per cent above the issue price, the potential for immediate high profits is reduced," he added. "Overall, the new rule is likely to have a moderating effect on SME IPOs opening."