Resourceful Automobile’s flat listing this Thursday served as a stark reminder in the heady world of Small and Medium Enterprises (SME) Initial Public Offerings (IPOs). Despite a staggering 419 times oversubscription for its modest Rs 12 crore issue, and shares trading at an 89 per cent premium in the grey market, the listing price mirrored the issue price at Rs 117. This lacklustre debut throws a spotlight on the frothy nature of the current SME IPO market.

Small Issues, Big Risks

As Ravindra Sonavane’s article on Moneycontrol highlights, this isn’t an isolated incident. A worrying trend is emerging with 11 SME firms listing with negative returns in 2024 alone. Even those that initially boasted premiums have seen their gains evaporate, leaving investors with losses. This year has witnessed a record 173 SME IPOs, raising a substantial Rs 5,965 crore from retail investors. The BSE SME IPO index’s impressive 195 per cent rally, dwarfing the gains of broader market indices, seems to be fuelling a classic Fear of Missing Out (FOMO) among investors.

Echoes of Market Bubbles

Shishir Asthana’s analysis points to the ingenuity of merchant bankers and the flexibility of market players in manipulating companies with small equity capital as drivers of this SME boom. However, the market regulator, SEBI, is right to be concerned. Their recent cautionary message underscores the potential for manipulative practices, where promoters offload their stakes after luring in investors. It’s a pattern seen throughout history, from Tulip Mania in the 1600s to cryptocurrency crashes more recently – fundamentals are easily ignored in a surging market. While SEBI has raised the alarm, whether the SME party will continue unabated remains to be seen.

Inclusion in Finance

In a positive move towards financial inclusion, the government issued an advisory this Thursday clarifying that the queer community faces no restrictions in opening joint bank accounts or nominating partners as beneficiaries. This notification from the Finance Ministry follows the Supreme Court’s October 2023 judgement in the Supriya Chakraborty case. The Reserve Bank of India (RBI) has also instructed commercial banks to comply. This step, while not addressing the larger issue of same-sex marriage legalisation, is a welcome move in recognising the financial rights of queer individuals.

While the markets grapple with the SME IPO frenzy and its inherent risks, the move to ensure financial access for the queer community is a step in the right direction. However, for investors in the SME space, perhaps a dose of caution is warranted. Are the potential high returns worth the significantly elevated risk in this segment? Time will tell if this SME boom is built on solid ground or just another chapter in market mania history.

Image Courtesy: X (Nirmala Sitharaman Office)