Regulator urges caution while investing in SMEs

Mumbai: The Securities and Exchange Board of India (Sebi) on Wednesday cautioned investors to be careful while investing in stocks of small and medium enterprises (SMEs) even as their initial public offerings continue to see huge oversubscriptions.

"It has come to the notice of Sebi that, post-listing, some of the SME companies and their promoters have been resorting to certain means that project an unrealistic picture of their operations," Sebi said in a release.

These announcements are typically followed up with various corporate actions such as bonus issues, stock splits and preferential allotments, it said.


"The above actions create a positive sentiment amongst investors, which induces them into purchasing such securities. Simultaneously, this also presents an easy opportunity to the promoters to off-load their holdings in such companies at elevated prices," Sebi said.

Last week, Sebi whole-time member Ashwani Bhatia asked chartered accountants to be more diligent while auditing companies listed on the SME exchange platforms.

The regulator, in the recent past, has taken action on a few companies listed in the SME segment such as Debock Industries, Varanium Cloud, SecureKloud Technologies, SecUR Credentials, Add-Shop E-Retail, and White Organics Agro.

"Investors are advised to not rely on unverified social media posts and not to invest based on tips and rumours," Sebi said in its statement.

The SME platform of the stock exchanges was operationalised in 2012 to serve as an alternative source of raising funds for emerging businesses. Ever since, there has been an increase in the number of SME issues as also the investor participation in such offerings.

During the last decade, more than ₹14,000 crore has been raised through this platform, of which around ₹6,000 crore was raised during FY24.