The Securities and Exchange Board of India (SEBI) has issued a cautionary advisory for investors regarding the potential risks associated with investing in companies listed on the SME segment of stock exchanges. SEBI highlighted that some small and medium-sized enterprises (SMEs) and their promoters have been engaging in practices that may artificially inflate the perceived value and operations of their companies, potentially misleading investors.
This advisory comes just two days after the remarkable response to the Rs 12 crore SME initial public offering (IPO) of Resourceful Automobile, a Delhi-based company. Despite having only two outlets and a workforce of just eight employees, the IPO attracted bids worth nearly Rs 4,800 crore, raising questions about the underlying factors driving such overwhelming investor interest. The company’s modest size and limited operational capacity contrast sharply with the massive demand for its shares, underscoring the growing concerns raised by SEBI.
SEBI has observed that certain SMEs, post-listing, have been making public announcements that paint an overly optimistic picture of their business activities. These announcements are often followed by corporate actions such as bonus issues, stock splits, and preferential allotments, which create a positive market sentiment. This, in turn, drives up the stock prices, enabling promoters to offload their holdings at inflated valuations.
SEBI’s advisory warns investors to be vigilant and exercise caution when investing in such securities. The regulator has also reminded investors to rely on verified information and avoid making investment decisions based on unverified social media posts or market rumors. The advisory stresses that this caution is in the best interest of protecting investors from potential market manipulation.
The regulator has also noted that it has taken action against such entities in the past and will continue to monitor and address any similar practices in the future.
