Small and medium enterprise initial public offerings continue to witness unprecedented investor interest despite regulatory tightening by SEBI and frontline regulators including stock exchanges. The oversubscription momentum in SME IPOs remains robust even after the minimum retail investment requirement was doubled to ₹2 lakh per application.

Record-Breaking Performance by Shyam Dhani Industries

Shyam Dhani Industries recently achieved the highest-ever subscription in SME IPO history on NSE Emerge, attracting investor interest worth ₹25,308 crore against the company's share offer of ₹38 crore. The spice manufacturing company's IPO was oversubscribed 918 times, setting a new benchmark for the SME segment.

The retail portion alone received subscriptions worth ₹14,560 crore for 208 crore shares against an offer of 18.28 lakh shares. Institutional investors placed bids worth ₹8,872 crore for 126 crore shares against an offer of 7.86 lakh shares.

Strong Debuts Across SME Segment

Several other SME companies have demonstrated impressive market debuts recently. Exato Technologies debuted on BSE Emerge at a 90% premium over its issue price after receiving bids worth ₹657 crore against plans to raise ₹36 crore. The technology solutions provider, which serves clients including MakeMyTrip, RBL Bank, IGT Solutions, IKS and WNS, was trading at ₹391 against the issue price of ₹140 per share.

TechD Cybersecurity made an equally stellar debut on NSE Emerge in September at ₹367 per share against the issue price of ₹193. The cybersecurity company's issue was oversubscribed 718 times, receiving bids worth ₹499 crore against plans to raise ₹37 crore.

Market Expert Perspectives

Ashok Holani, Director at Holani Consultants, attributes the changing investor perception of SMEs to the conducive business environment and the country's economic growth potential. As a Chartered Accountant who mentors companies for one year after selecting them for IPO based on business prospects, promoter track record and valuation expectations, Holani emphasizes the importance of selectivity.

"While I'm not here to say all SME IPOs are good, investors should be more selective based on the merchant banker background and do their due diligence before placing their bet," Holani stated.

Regular SME IPO investor Ashok Singh noted that despite potential pitfalls, investing in SME IPOs provides the feeling of company ownership due to lower equity capital. He highlighted that obtaining allotment in the retail portion remains challenging due to consistently high demand for companies backed by reputable merchant bankers.

The Indian initial public offering (IPO) market, particularly in the small and medium enterprise (SME) segment, is experiencing significant challenges as numerous stocks trade well below their issue prices. A recent analysis of the 121 IPOs launched reveals a concerning trend, with 39 stocks currently trading below their initial offering price.

SME Sector Hit Hardest

The SME sector appears to be bearing the brunt of this downturn, with some of the most dramatic declines observed in this category. Leading the descent is Arunaya Organics, which has seen its stock price plummet by a staggering 58.00% from its initial issue price of ₹58.00. Following closely behind are several other SME stocks:

• ATC Energies System
• Delta Autocorp
• Ken Enterprises
• Ganga Bath Fittings

Each of these companies has witnessed a significant 47.00% decline from their respective issue prices.

Mainboard Listings Not Immune

While the SME sector is facing the most severe impacts, mainboard listings have not been spared from the downturn. Notable examples include:

Broader Market Perspective

Looking at the broader IPO landscape over the past year, a total of 224 IPOs were launched. The performance of these offerings presents a mixed picture:

• 131 stocks are trading above their issue prices
• 93 stocks have fallen below their initial offering prices

This data suggests that while there are success stories, a significant portion of new listings are struggling to maintain their value in the secondary market.

Future Outlook

Despite the current challenges in the secondary market, industry experts remain optimistic about the continued momentum in the IPO market. The mid-cap segment, in particular, is expected to see sustained activity.

Several high-profile companies are generating significant buzz with their upcoming public issues, including:

• Tata Capital
• Zepto
• PhonePe
• HeroFinCorp
• FabIndia

These anticipated listings are expected to draw considerable investor attention and could potentially influence market sentiment.

Investor Caution Advised

The current market conditions underscore the importance of thorough research and a cautious approach for investors considering participation in upcoming IPOs. While new offerings continue to attract interest, the performance of recent listings serves as a reminder of the inherent risks in the IPO market, particularly in the SME segment.

As the market navigates these challenges, it remains to be seen how upcoming offerings will perform and whether they can buck the trend of post-listing declines observed in a significant number of recent IPOs.