SEBI Alerts Investors To Risks In SME Securities Amid Misleading Practices

The Securities and Exchange Board of India (SEBI) has issued an advisory to investors regarding the risks associated with investing in securities of companies listed on the Small and Medium Enterprises (SME) segment of stock exchanges. This advisory comes amid growing concerns over the integrity of information and practices surrounding these companies.

Background of SME Platform

The SME platform, launched in 2012, has played a role in providing emerging businesses with an alternative avenue for raising funds. Over the past decade, the platform has facilitated the raising of over Rs 14,000 crores, with approximately Rs 6,000 crores being raised in the fiscal year 2024 alone.

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Concerns Raised by SEBI

Despite the platform’s success in fostering capital for SMEs, SEBI has identified troubling practices among some companies and their promoters. Post-listing, certain entities have been observed engaging in activities that create a misleadingly positive portrayal of their operations. These practices include public announcements and corporate actions such as bonus issues, stock splits, and preferential allotments, which often lead to a surge in investor interest and inflated stock prices.

Manipulative Practices

According to SEBI, these actions generate a deceptive sense of optimism among investors, prompting them to purchase securities at elevated prices. This, in turn, provides an advantageous exit strategy for promoters looking to offload their holdings profitably.

Regulatory Actions Taken

In response to these issues, SEBI has already taken regulatory action against some of the entities involved. The details of these orders are accessible on SEBI’s official website, highlighting a recurring pattern of manipulative behaviour.

Investor Advisory

SEBI’s advisory underscores the importance of investor vigilance. Investors are urged to scrutinize investment opportunities carefully and avoid relying on unverified information circulating on social media. The regulator emphasizes that decisions should not be based on tips or rumours but on verified and reliable information.

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