SME stocks: 'Dus ka bees' gang in trouble as Sebi plays tough cop

For Dalal Street's 'dus ka bees' gang, who want to double their money in no time, SME stocks have replaced hope trading in low-priced penny stocks. Retail investors can be seen valuing little-known SME stocks like VCs splurging money on the next big startup idea.

The below-the-radar SME trade has so far paid off pretty well with many little Ninjas giving inferiority complex to bluechips by delivering multibagger returns. SME IPOs have been treated as a sure-shot way to make easy money on listing day itself. The BSE SME IPO index has surged about 1,900% since the end of 2019 while the average return from these 'chota' IPOs listed in 2023 is over 80%.


But this dream run has now caught the attention of the market regulator Sebi after several market participants pointed out the irrational exuberance seen in BSE SME and NSE Emerge platforms.

Sebi's move to extend the trade-for-trade settlement framework and short-term additional surveillance measure (ASM) to include small and medium enterprises (SME) stocks with effect from October 3 to curb price manipulation punctured the rally on Tuesday.

BSE SME IPO index plunged 2.5%. On NSE, three out of every four SME stocks fell.

Due to low volumes, less liquidity, SME stocks are susceptible to price rigging and pump-and-dump scams.

"The circular from the exchange calls for ASM in any SME script if price moves + or - 25% in 5 trading days or few clients are dominating trading in that particular script. In such a scenario, the exchange may levy up to 100% margin in such scripts for trading and will seek clarity from the company on any corporate announcements which may be behind the price movement," Shrey Jain, founder, SAS online, said.

Regulatory measures will help bring about stability in price movement of these stocks, he said.

Dalal Street's top value investor Vijay Kedia says many small investors have a fascination for low-priced stocks as it gives the impression of being cheap. "But SME stocks are not penny stocks. There is FOMO in the market. Valuations are quite high and this euphoria is going to cool down some day," he said.

SME stocks are typically considered suitable for investors with high risk tolerance and an investment horizon of over five years. "Not all SMEs are outperformers, so selection will be the key. The micro-cap space is a deep ocean and there are a lot of good companies still available at reasonable valuations with strong growth potential," says Mohit Nigam, Head - PMS and Fund Manager, Hem Securities.

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