The latest curbs imposed on companies that are traded on the small and medium enterprises (SME) platform could apply brakes on rising volumes. The average daily turnover (ADTV) for BSE's SME segment has shot up three times from Rs 28.4 crore in February to Rs 85.2 crore last month, indicating growing investor and trader interest. Similarly, NSE's Emerge platform for SME companies has witnessed over 3x year-on-year growth in ADTV to Rs 67 crore for the fourth month ending July 2023.
On Monday, exchanges extended the short-term additional surveillance measure (ST-ASM) framework to SME stocks. The move was taken after a joint surveillance meeting with market regulator the Securities and Exchange Board of India (Sebi).
Market players said the curbs will clamp down on speculative activity and attract serious buyers.
The NSE and the BSE announced that the decision was a step in order to enhance market integrity and safeguard the interest of investors. The framework for SME stocks would be effective from 3 October.
Until now, the framework has been implemented only on a portion of stocks listed on the mainboard. Both NSE and BSE have their platforms for the listing of SMEs.
The regulator's concern stems from the irrational growth and return seen in the prices of the SME stocks.
In the last three years, BSE SME IPO index has surged over 2,300 per cent against a 76 per cent growth in Sensex. In the last one year, the Nifty SME Emerge Index gained over 75 per cent, while the BSE SME IPO index jumped 115 per cent. The Nifty SME Emerge Index has a total of 146 SMEs as constituents.
"I think it's a good move. SME stocks, in the recent past, have been giving returns disproportionate to their financial performance. A deep investigation can reveal many surprises," said an official from a brokers' association.
As of 26 September, a total of 236 SMEs are eligible for trading on the BSE platform, of which 152 are traded with a market capitalisation of around Rs 26,300 crore. Since inception, 176 SMEs have migrated to the mainboard. On the NSE Emerge platform, over 200 SMEs are being traded.
The stocks are placed within the ST-ASM framework based on high variation in prices or trading volumes. On being placed within the additional surveillance, the stocks will be made subject to a higher rate of margin, and a clarification will be sought on any corporate announcement which may not have been disclosed.
Further, the trade-for-trade settlement framework has also been extended to SMEs, which will be reviewed on a fortnightly basis.
In the past, the SME segment had gained news for alleged tax manipulation and erratic rise in stock prices.
Introduced in 2012, the SME trading platform is aimed at providing smaller companies a fresh avenue for capital raising. The disclosure and regulatory requirements for companies that are part of this segment are more lenient compared to those listed on the mainboard.