NSE’s cap on SME IPO to rein-in volatility, over subscription

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Updated – July 06, 2024 at 07:17 PM.
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Mumbai, July 6

NSE Emerge IPO price cap aims to reduce volatility, encourage long-term investment, and boost confidence in SME stocks

SME – Small and Medium Enterprise wording – business concept
| Photo Credit:
PanuddaN

The National Stock Exchange’s decision to introduce an overall cap of 90 per cent on the opening price discovered during a special pre-open session for initial public offer on the NSE Emerge will have an impact on volatility and run-away over subscription in the short-term.

Following this, the debutant stock on NSE Emerge platform can not be listed at a premium of more than 90 per cent over its issue price. Most retail investors borrow money to invest in SME IPOs and repay it after booking profit on bumper debut. Investors tapping the SME IPO through borrowed money need to rework their business plan.

Manish Jain, Director – Institutional Business (Equity & FI) Division, Mirae Asset Capital Markets, said in the short term, the over-subscription of IPO on the NSE Emerge may drop but in the longer term it will help in attracting and retaining quality issuers and investors.

“Price movements will be less volatile and such stable pricings will help the investors taking a long term fundamental call. It may also reduce chances of investors losing money because of wide fluctuations in the prices on a single day,” he added.

Ambey Laboratories, whose IPO is underway, may get listed on July 11. Two other IPOs on NSE Emerge — Ganesh Green Bharat and Effwa Infra & Research — may list on July 12.

Bipin Bhanushali, President (Investment Banking), Marwadi Chandarana Intermediaries Brokers, said the SME segment of the capital market has been growing much faster than the mainboard segment as the mindset of entrepreneurs has changed towards value creation for themselves and stakeholders.

With the new price cap in place, he added investors will rather opt for long term investment in the SME segment rather than restricting to listing gain.

As of June 13, about 100 companies have raised ₹3,095 crore through SME IPO this year against ₹4,686 crore by 182 companies in 2023. This marks the highest amount raised in the first six months of a calendar year since the introduction of the SME option.

The BSE SME IPO, which tracks the stock prices of companies listed on the BSE’s SME platform, rose by 74 per cent in 2024, 96 per cent in 2023, and 42 per cent in 2022.

Alok Haralalka, MD, Gretex Corporate Services, said by restraining initial price volatility, the regulation encourages a strategic approach to investing and will boost confidence in SME stocks.

Though it will be challenging for buyers initially due to limited liquidity, he added the cap ensures a balanced and trustworthy trading environment over time and prevent extreme price fluctuations on the first day by discouraging rapid selling for quick gains.

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