The SME market is now almost like a casino. It doesn’t look like the stock market.
Sunil Subramaniam: I totally agree with you. The reason for this is also related to the huge futures and options position. Demat accounts are increasing. Post-Covid, the Internet and technology-savvy youth, with a lot of time on their hands, treat the stock market like a gambling den. There are no two ways about it. We have no other options for gambling. We can see the same kind of success when it comes to Dream11 and those kinds of game-related apps. Despite all SEBI’s controls, financial influencers (fin influencers) play a major role. It’s like a get-rich-quick scheme. Booking profit from this IPO shows their intention. They are not investors. They are speculators.
As long as the process is clean, the regulator will grant approvals. Regulators will never put a full stop to an IPO at valuation; It is the function of merchant bankers. Regulators talk about disclosure. So somewhere, merchant bankers and brokers need to be careful and do a fiduciary duty not to sell bronze at diamond prices because they are taking the company public.
Sunil Subramaniam: Partly I would agree with you because these merchant bankers are not engaged in the work of right selling. Their job is to get the maximum price for the issuer. Second, since the stock market is like a commodity market, who says what the right price is? Is an average PE of 25 appropriate and an average PE of 32 appropriate? The market is best to judge.
So, can you blame merchant bankers for trying to maximize rewards for their existing shareholders, be they promoters or PE people? I think it is a part of the capital market. This is how capitalism works. Now, who will regulate this? Now, the point is very simple. I don’t think the SEC even regulates this. Until there is a price fixing, manipulation, some false news is put out which increases the stock price. Unless you can find clear evidence of fraud.
Second, let me take a slightly larger perspective: I think this is all part of a healthy capital market. Liquidity comes into the market only when you have speculative entities like these guys. But if you control it and take it out, as a market as a whole, liquidity will shrink. So, there is a moral issue that perhaps young people who know nothing about markets are coming. They are making money today.
SEBI has proposed a comprehensive review of merchant banker regulations
Tomorrow, they will burn their fingers. They are moving away from markets, it is a social and moral issue. But a healthy capital market always needs speculators. An element of speculation is necessary for the market to breathe. So, from my point of view it is a healthy capital market.
But yes, some people don’t know that they are being used by financial influencers to invest without any basis, and they want to book profits. A SEBI study says that when people book losses, they fill them and keep them in their cupboards. They forget about it. They are very public about their profits, but they hide their losses in the closet, but it is natural. I say we are a developing capital market and these things will happen.
Should regulators step in on valuation? I don’t think it’s fair because there’s no golden rule on what a fair valuation should be. The market is the best judge.
Do you think there is a need for SEBI to come in and take extra vigilance somewhere? For example, to control market risk, regulators and exchanges may change margins. If we have to pop a bubble in the SME market, the regulator can tighten it and merchant bankers need to be careful and not just say that the risk is on investors.
Sunil Subramaniam: The danger is that there is no orderly move from chaos to stability. The moment the regulator announces something like this, there will be a collapse and a lot of people will face huge losses and you are going to hurt them big. slap (slap) and a big shock.
SME IPO: Why stricter norms are needed for merchant bankers and social media, says Ashwin Parekh
So, one option is to talk about it, as SEBI did in the smallcap case or the futures and options case. They can talk it down. Financial influencers have made some effort to bring it down, but putting in place any regulations indicates that Sebi considers this irrational exuberance to be a cause of collapse.
In a controlled move out of this chaos, I would suggest that we first start by talking, advising and guiding before we introduce any drastic actions that could mis-signal the market and lead to a domino effect. Sebi should also believe that. As far as data and analytics are concerned, SEBI has a fantastic AI team of high-quality engineers churning out this data. So, if they feel that there is any malpractice involved, some kind of insider trading is involved, any information is leaked, they should take strict action. So, wherever something illegal is going on, you take action.
I would shy away from trying to control the free capital market through regulations, but conversation is always welcome.
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