India's securities regulator is thinking of enforcing stiffer standards for merchant bankers doing due diligence and monitoring the use of cash by micro-cap enterprises that go public.
The individual, who asked not to be named because the information is confidential, stated that further possible measures being considered include requiring a longer track record of profitability and more examination of financial accounts. They further mentioned that this comes after instances of fraud in this market sector.
Nevertheless, the individual stated that the Securities and Exchange Board of India is not willing to replace the National Stock Exchange of India Ltd. and BSE Ltd. in charge of the listing clearance procedure for small and medium-sized businesses. A few investors have requested that the regulator oversee this procedure directly. The talks are still in the early stages, and before a preliminary draft is forwarded to the regulator's main market advisory group, changes may be made.
Since the pandemic, investor interest in small enterprises that are thought to have the ability to develop in tandem with faster economic growth has fueled a boom in India's micro-listings market. Concerns over the caliber of offers in this specialized market were raised just two weeks ago when a motorbike shop with just two locations and eight staff put out a $1.4 million IPO, which was more than 400 times oversubscribed.
Indian regulators have taken action as a result of a spike in investor interest in stocks of companies with an unclear track record and certain cases of stock-price manipulation. According to the individual, SEBI requested that the BSE postpone Archit Nuwood Industries Ltd.'s initial public offering (IPO) in August because of doubts about the company's financial records.
The NSE established a ninety percent listing gain ceiling in July, and the regulator has repeatedly advised investors to exercise caution when making investments in small and medium-sized enterprises. Ashwani Bhatia, a SEBI full-time member, said reporters last month that a discussion paper detailing more stringent listing guidelines for this industry will be made available by year's end.
The regulator did not respond to calls or emails asking for comments from its spokeswoman.
Narinder Wadhwa, managing director of SKI Capital Services Ltd., stated that SEBI "will be looking to strike the right balance between protecting investors and helping the market grow." "The regulator may take into account extra requirements, such as lengthening the anchor investor lock-in period," he stated.
