SEBI cautions investors on overhyped SME IPOs

The Securities and Exchange Board of India (SEBI) has issued a warning to investors amid a surge in oversubscribed SME IPOs, emphasizing the need for caution. The regulator's advisory highlights concerns over unrealistic portrayals of some SME companies and their promoters, who have been accused of creating a misleading view of their operations.

SEBI’s statement notes that certain SME firms and their promoters are using tactics to project an overly positive image, including public announcements followed by corporate actions like bonus issues and stock splits. The warning is aimed at protecting investors from relying on unverified social media posts and speculative rumors.

The advisory follows a recent wave of highly oversubscribed SME IPOs, such as Resourceful Automobile’s, which saw its issue oversubscribed by 400 times, attracting Rs 4,800 crore against a target of Rs 12 crore. This trend highlights the growing speculative investments in SME stocks, which have seen significant gains and high market liquidity.

Experts like Vaibhav Porwal, Co-founder of Dezerv, and VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, caution that while the current trend may continue, investors should focus on company fundamentals to avoid potential sharp market corrections. They stress the importance of addressing speculative excesses and maintaining financial stability in investments.