Does NSE’s price capping on SME IPOs mean no multibagger returns on Day 1?

As SME IPOs become a more mainstream asset class for investors, regulators are looking to formalize the market through multiple checks and balances. In one such move, the leading exchange NSE capped the listing price of SME issues at 90%, regardless of the grey market trends.

Nephro Care, which had a pre-listing grey market premium (GMP) as high as 300% over the issue price, had to list today at just a 90% premium due to the price cap on the exchange.

The move to check the listing surge came on the back of 10 multibagger listings in the last two months, leading to pockets of concerns around the valuations and potential manipulation of prices.

Analysts say that the listing price cap on SME IPOs could impact the grey market premiums for future public offerings.

However, this doesn’t rule out the possibility of multibagger debuts. For example, if an IPO lists at a 90% premium on its listing day and the stock subsequently rises by 6-10%, it can potentially double investors’ money.However, such occurrences are expected to decrease significantly in frequency.”The SME IPO subscription numbers and listing gains are becoming too good to be true. Overall, the regulators are trying to regularise this market as they understand that this cannot be ignored any longer,” said Kush Gupta, Director at SKG Investment & Advisory.Earlier this year, markets regulator Sebi had issued warnings of price manipulation in SME IPOs, setting the stage for greater regulation.

The volumes in SME IPOs are typically low and it is relatively easy to inflate the share price, leading to massive overvaluations of these issues. The listing price cap will likely check the pre-IPO rush by investors in the unlisted market, and thereby curbing the valuations post listing to an extent.

However, analysts believe that the number of companies entering the SME segment and the valuations at which IPOs are priced are unlikely to change significantly.

“In some of the SME IPOs, promoters are diluting the stake at listing price instead of selling at IPO price, because they know the debut price will likely be higher. So, this move by the NSE might restrict such maneuvers,” said Gupta.

Overall, analysts believe that with the price cap in place, the speculation aspect of SME IPOs, which has become a significant part of the market, will come under control. They say this move is a welcome one and not the end.
Regulators might look for more ways to bring in even more checks in the near future.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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