Financial year 2023-2024 (FY24) was a record year for small and medium enterprises (SMEs) as the segment saw a huge uptick in IPO (initial public offering) activity. In this financial year (till March 28, 2024), as many as 205 companies collectively raised approximately ₹6,300 crore through the SME IPO route.
This financial year’s tally represents a significant increase compared to the previous fiscal (FY23) when 125 companies raised ₹2,235 crore, according to data from Prime Database, a primary market tracker. On a year-on-year basis, this figure is up 182%.
“This upsurge was primarily driven by heightened retail investor interest, buoyed by limited mainboard IPO opportunities,” said Amit Goel, Co-Founder and Chief Global Strategist at Pace 360.
71 SMEs had raised around ₹979 crore in financial year 2022, according to data from Prime Database.
KP Green Engineering’s ₹189.5 crore issue turned out to be the biggest in the SME segment in the current financial year, followed by Spectrum Talent Management’s ₹105 crore offer and Aashka Hospital’s offer worth ₹101.6 crore.
SME IPOs saw retail investor frenzy at its peak, as evident from the subscription numbers. Kay Cee Energy and Infra’s IPO was subscribed 959 times the offer size, followed by Maxposure, with 904.86 times subscription. Of course, it must be noted that the small size of the IPOs also reflects in the hefty subscription numbers.
Signs of manipulation in the SME segment
Recently, SEBI Chairperson Madhabi Puri Buch raised concern over signs of price manipulation in the SME IPO segment and trading in such shares.
The market regulator is now looking to mandate additional disclosures in the case of listing SMEs.
“In terms of actual price manipulation (in the SME segment) both at the IPO level and the trading level, we are working to evidence that, and we do see the signs. We have the technology to do it, so we are able to see certain patterns. However, as per the regulations, the way we need to construct the entire case, we do need to take some time to do that in a robust manner,” the SEBI Chairperson said at an event organized by the Association of Mutual Funds in India (AMFI).
The SEBI Chairperson said the market regulator has received feedback from the market on price manipulation in the listing of SMEs. SEBI has also been advised by the market participants on ways to identify such cases and deal with them.
Since that statement, multiple SME stocks witnessed double-digit falls over the next few days. The S&P BSE SME IPO Index is down 11% over the last month.
Meanwhile, the S&P BSE SME IPO index has more than doubled in value, outperforming the benchmark Sensex by a significant margin in the last one-year period.
SME IPO outlook for FY25
Despite the promising landscape for SME IPOs in this financial year, a cloud of uncertainty hangs over the horizon, Goel said. This uncertainty, as per Goel, stems from the potential enforcement of stricter regulations by SEBI concerning trading and fundraising activities.
Additionally, he said that concerns about overvaluations pervading the broader market and indications of price manipulation in SME IPOs, further dampens the outlook for this segment in financial year 2025.
“Looking ahead to FY25, potential regulatory tightening might lead to a reduction in the number of IPOs. However, the long-term outlook remains optimistic, with expectations of high-quality companies approaching the SME board. Additionally, the investor base is anticipated to expand, which may further solidify the sector’s foundation,” said Manick Wadhwa, Director at SKI Capital.
