Sebi chief Madhabi Puri Buch pointed out that there is “froth” in small and mid-cap stocks as she referred to “off the charts” valuations in these market segments that indicates price manipulation in small and medium enterprises segment. Sebi is willing to review norms that mandate small and mid-cap funds to invest 65% of their assets in these stocks if this is needed to promote risk management, she said as small and mid-cap shares outperformed major indices.
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There are segments where valuation parameters are “off the charts” and not supported by fundamentals, she said, adding, “These appear, as regulators like to call it… ‘irrational exuberance’.”
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Disclosure requirements for SME segment: Sebi will implement more disclosure requirements for the segment as the BSE SME IPO index fell over 2.3% after the Sebi chairperson’s comments. BSE & NSE created separate platforms for listing of SMEs in 2012 after Sebi relaxed norms to enable such enterprises to list. In the past 12 months, there has been a surge in SME listings.
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The regulator will attempt to ease stringent listing environment for SMEs, she said, explaining, “It is clear that additional disclosure regarding risk factors is necessary for investors to understand the differences between the SME segment and the main board, considering the varying regulations and associated risks.”
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Sebi is also working to “evidence” the price manipulation of MSME stocks during trading as “we do see the signs; we have the technology to do so. We can observe certain patterns. According to regulations, we must construct the entire pattern and do so in a robust manner. Fortunately, the market has provided us with feedback on what we can do to identify and address such cases,” she pointed out.
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