The NSE has introduced stricter rules for companies wanting to list on its SME platform. From September 1, companies must show positive Free Cash Flow to Equity (FCFE) for at least two of the last three years before they can file for an IPO. This new requirement is meant to ensure that companies are financially strong before going public, which could boost investor confidence.
SME IPOs have become popular with investors, leading to more regulations. The NSE recently set a rule that SME IPOs cannot list at more than 90% of their issue price, even if the grey market shows higher prices. This decision comes after several SME IPOs saw massive subscription rates, with some going up to 2,000 times. Many of these IPOs also listed at a significant premium, which raised concerns about possible price manipulation.
Because SME IPOs typically have low trading volumes, it’s easier to artificially inflate share prices, leading to overvaluations. The market regulator, Sebi, has already warned about this, pushing for stricter rules.
Experts believe these new requirements will bring more transparency to the SME market, helping investors make better decisions. They advise investing in companies with strong business models and a good track record, rather than looking for quick profits in the SME sector. With increased scrutiny, investors should be cautious and selective when considering SME IPOs.
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