Wanted ₹12 crore, got ₹4,800 crore: Top Sebi member red flags SME IPO frenzy, wants bourses to say no

Investors are piling into SME IPOs with blind bets, driving oversubscriptions to staggering levels. In a striking example, a Delhi bike dealer's IPO was oversubscribed by 419 times the intended raise, signaling the frenzy in the market.

Sebi's whole-time member, Ashwani Bhatia, has raised concerns about this unchecked enthusiasm. 

At the CII Financing 3.0 Summit, Bhatia urged exchanges and auditors to exercise greater caution with SME listings, warning of potential manipulation and fraud in the sector. 

"Merchant bankers should learn to say no," Bhatia emphasized, noting the reluctance of financial intermediaries to turn away IPO applicants despite red flags.

With SME market capitalization hitting Rs 2 trillion, Bhatia stressed the importance of due diligence. He warned that inflating balance sheets could lead to fleeting relationships with intermediaries, ultimately damaging the companies themselves. “Be a good doctor to companies; don't prescribe steroids when paracetamol will suffice,” he advised.

Last month, SEBI issued a stern advisory after observing that some SME promoters were creating unrealistic projections post-listing. The regulator pointed to practices like issuing bonus shares and preferential allotments to inflate stock prices, which could mislead investors. This advisory followed the IPO of Resourceful Automobile, a company with just two Yamaha dealerships and eight employees, which astonishingly attracted bids worth Rs 2,700 crore for an issue size of only Rs 12 crore.

Bhatia has indicated that SEBI may tighten norms governing SME IPOs, with better monitoring and stricter scrutiny of auditors' work. "If the chartered accountants do their job diligently, we can avoid problems," he said, hinting at forthcoming regulatory changes aimed at curbing the excesses in the SME IPO market.