National Stock Exchange Tightens Listing Norms For SMEs

New Delhi, Aug 23 (KNN) The National Stock Exchange (NSE) is set to implement stricter regulations for small and medium enterprises (SMEs) seeking to list on stock exchanges, effective September 2024. 

This move comes in response to the recent surge in initial public offerings (IPOs) within the SME segment.

Under the new guidelines, companies will be required to demonstrate positive Free Cash Flow to Equity (FCFE) for at least two out of three financial years preceding their application. 

FCFE is a metric that represents the amount of cash available for distribution to shareholders.

The exchange clarified in a circular that these additional criteria will apply to all Draft Red Herring Prospectuses (DRHPs) filed on or after September 1, 2024, while other existing criteria remain unchanged.

This development follows the NSE's recent introduction of a 90 per cent cap on price movement during the listing day of SME IPOs. 

The measure aims to standardise the opening price discovery process across exchanges during the special pre-open session for IPOs on the SME platform.

The SME IPO segment has garnered attention due to unprecedented levels of subscription and substantial listing gains. 

Several SME IPOs this year have seen subscription rates exceeding 1,000 times, with many others surpassing 100 times. Such oversubscription has often led to significant price increases on the first day of trading, with some stocks more than doubling in value.

These trends have raised concerns about potential market manipulation and overvaluation within the segment. 

Securities and Exchange Board of India (SEBI) Chairperson Madhabi Puri Buch addressed these concerns in March, acknowledging signs of manipulation in the SME segment and noting that regulatory bodies are working to address the issue.
The SME IPO market has already set a new record for cumulative fundraising in 2024. According to Prime Database, 144 SMEs have launched public issues this year, raising a total of Rs 4,800 crore. 

This surpasses the previous year's figures, which saw 182 companies raise Rs 4,686.11 crore through SME IPOs.

(KNN Bureau)