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Frenzied retail demand pushing SME IPOs to dangerous heights: Sunil Subramaniam

September 30, 2024
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This is exorbitant profit making. So, I think the regulator has to first put curbs on the merchant bankers. As you are saying, diligence of them and if they have found fault, there should be severe and strict punishment on the institutional piece of the business, that is one. Second is what this is also leading to is the raising of capital when it is not needed. “Today, you just present a good story, people are willing to buy. And some of the recent IPOs are doubling just the day after listing are adding to this frenzy. But it is the institutional segment, the merchant bankers who need to be disciplined, who need to not use everything as a revenue earning opportunity,” says Sunil Subramaniam, Market Expert. Am I right in saying when I say that right now merchant bankers who are taking some of the SME IPOs public, they are not doing their fiduciary duty. They are like the SEBI, whole-time director, Mr. Bhatia said that they are prescribing steroids when paracetamol can do the work.

Sunil Subramaniam: I think absolutely because if you look at it, the situation is that you have a gullible investing public. You look at the stories around the F&O story, the margin trading story, the Demat account, people just buying stocks. So, there is what is called in Hindi, the hawa. So, in this place, all it needs is a good story for people to buy it. And it has gone to such an extent that I got a WhatsApp forward saying, somebody has got 10 tickets to the Coldplay concert and wants to launch an IPO. Fin influencers are also a part of this.  And some of the recent IPOs are doubling just the day after listing are adding to this frenzy. But it is the institutional segment, the merchant bankers who need to be disciplined, who need to not use everything as a revenue earning opportunity. And I think SEBI’s Mr. Bhatia’s thinking is in the right direction and I think you will soon see some level of regulations come into play in this space and that is the only way to control it. Because people today, unfortunately, because of the markets going up every day are thinking that the markets are a money printing machine and so it is very difficult to prevent those people from doing it. It is only the discipline from the supply side. Demand is exorbitant. The supply needs to be controlled, managed and I think, absolutely, I agree with Mr Bhatia’s thing. And there is this froth in the IPO market in the SME space, absolutely. But like Mohit said that we are too much deep now in, which is that if you start unwinding, things may just collapse like a pack of cards. So, the way in is what we know, but it is almost becoming like this Abhimanyu ka chakravyuh, that you know how to get in, you do not know how to get out.

Sunil Subramaniam: Yes, absolutely. Chakravyuh, but also can never have a programmed exit from a California gold rush kind of a scenario, which is exactly what is happening. And let us take a parallel to the fact that this is something that should come under the MRTP, according to the monopolies and restrictive trade practices, because what is happening is there is a limited supply, phenomenal demand, so the supply makers, which is the company’s promoters as well as the merchant bankers are taking advantage of this and pricing this at unrealistic levels. So, it is like selling a bottle of Bisleri which sells at Rs.10 in Mumbai, in the Thar desert you charge Rs.1000 from people because the demand is so high. Should you allow that to happen? This is exorbitant profit making. So, I think the regulator has to first put curbs on the merchant bankers. As you are saying, diligence of them and if they have found fault, there should be severe and strict punishment on the institutional piece of the business, that is one. Second is what this is also leading to is the raising of capital when it is not needed. Promoters are now looking to cash out rather than raise money. As you said and as the previous speakers said, this is meant to be a substitute to raise equity so that bank financing can then balance it and the SME can grow. But today what is happening is that SME promoters are just cashing out their holdings just to make money and that is unhealthy because one way of looking at it when somebody lists his stock or gives it away is to say that I am raising money to make better money for you, that is not the case. He is making money for his pocket. So, it is a very unhealthy paradigm right now. And I think that you cannot control the retail frenzy because it is all over, thanks to the internet and the YouTube and the fin influencers, it is everywhere. Oh, my stock doubled. My stock tripled. So, you cannot control that end of it. So, the institutional end of it with regulation and to make the listing guidelines far more severe, the due diligence requirement by merchant bankers, I think that is the only way you can achieve some level of a programmed wind down of this frenzy but I am not very confident that can happen and I think a crash in the SME IPO could be happening anytime and hundreds of retail investors are going to then be crying at the doors of the regulators, the opposition party is going to come and say what has the regulator been doing? So, it is not a very clean situation right now. It is a bit messy. And we might wish to have a programmed wind down of these what you call, unbelievable prices, but markets tell you that is not the way it happens. Inevitably, a crash in that particular segment will result sometime in the future and that day could be a month from now, six months from now, we do not know how long this frenzy can last.

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