SEBI Issues Advisory on Risks in SME Securities Investments

SEBI has advised investors of risks in investing in securities of SME-listed companies amid concerns over misleading practices. The SME platform has significantly raised funds for emerging businesses, but SEBI has noted manipulative actions by some entities. Regulatory actions have been taken and investor caution is urged.

The Securities and Exchange Board of India (SEBI) has issued a cautionary advisory to investors regarding the risks tied to investing in securities of companies listed on the Small and Medium Enterprises (SME) segment of stock exchanges. This advisory arises from growing apprehensions about the integrity of information and practices among these companies.

Launched in 2012, the SME platform has offered emerging businesses an alternative route for capital raising. Over the last decade, it has facilitated the raising of more than Rs 14,000 crores, with around Rs 6,000 crores raised in the fiscal year 2024 alone. Although the platform has successfully fostered capital for SMEs, SEBI has pointed out troubling practices among some companies and their promoters.

Post-listing, certain entities have been observed engaging in activities that project a misleadingly positive portrayal of their operations. These activities include public announcements and corporate actions such as bonus issues, stock splits, and preferential allotments, often leading to a surge in investor interest and inflated stock prices. SEBI notes that these actions create a false sense of optimism among investors, prompting them to buy securities at inflated prices, thereby providing an advantageous exit strategy for promoters.

In response to these issues, SEBI has already taken regulatory actions against some involved entities. Details of these regulatory orders are available on SEBI's official website, showcasing a recurrent pattern of manipulative behavior. SEBI's advisory underscores the need for investor vigilance. Investors are urged to scrutinize investment opportunities thoroughly and avoid relying on unverified information circulated on social media. The regulator emphasizes that investment decisions should be based on verified and reliable information.

(With inputs from agencies.)