A case for bolstering SME IPOs for the wealthy investor
There is a life lesson to be had in the growth of Chinese bamboo. The tree takes about five years to sprout. But once it does, it has a growth spurt, rising to even 80 feet in just a few weeks. That is what has been happening with SME IPOs in the recent past.
Last year was remarkable for small and medium enterprises, with 182 companies getting listed on SME exchanges via initial public offerings of their shares. This year, we have already seen 87 SME IPOs. The subscription figures, too, have been astonishing, with many SME IPOs being oversubscribed by 500-1,000 times the issue size.
That said, due to the unique risks involved, SME IPOs are more suitable for retail and wealthy, or so-called high net worth (HNI), investors.
One of the primary draws in the SME IPO process is the relative ease with which companies can raise capital from listing on the SME exchanges. While mainline IPOs on NSE and BSE require stricter regulatory scrutiny and approval from the Securities and Exchange Board of India, SME IPOs need only an exchange approval. Filing of the listing prospectus with Sebi is a post-IPO formality for record-keeping purposes. But this relative ease places the onus on investors to look deeper into a company before investing in it.
The market regulator has placed the SME IPO segment under additional surveillance measure (ASM) and trade-to-trade (T2T) settlement practices. This restricts the number of participants and trading volumes, making SME stocks a better choice for HNIs than retail investors.
To protect retail investors from the higher risks associated with smaller companies, Sebi sets a higher minimum ticket size for SME IPOs, attracting more experienced and financially capable investors. This helps maintain
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