Hello and welcome to the Weekend Investing Daily Bite of 3rd September. The markets are doing quite well today. Nifty is a bit range-bound, but the rest of the market did quite well. In the last few sessions, people were expecting the market to soften towards the middle of the month due to the potential rate cut in the US. However, the broader market took a U-turn, although Nifty remained range-bound.
Today, we are going to talk about the retail stampede into SME IPOs. We will discuss whether the current narrative in the markets is excessively negative about this segment or if we should take a more open, positive approach. Some of these small and medium enterprises could be the big winners of the next decade, transitioning from SMEs to small caps, mid caps, and possibly even large caps. This journey is like the evolution of small companies into larger corporations. Without allowing this evolution, newer and bigger corporations will not emerge. While there is dirt in every segment, including the listed segment, where there are many manipulated companies, SME IPOs are no different.
Market Overview
Where is the market headed? The market has stabilized, with Nifty remaining absolutely flat today. The range was about 80 points, bobbing around 25,321 and 25,235, and it closed absolutely flat. I have no issues if it remains flat for the next ten days, as this is a good place for consolidation. Nothing lost, nothing gained, and no harm done.
Nifty Next 50
Nifty Junior was up 0.1%. The color of the candles indicates whether the market builds on where it opens. In the last six sessions, there was only one green candle. The move that started had good positive momentum, but post-20th August, there have been higher opens but sluggish closes. The market is not willing to go up and needs consolidation. If it consolidates until the middle of the month and we get a half-percent rate cut, that might trigger the markets to rally further.
Nifty Mid and Small Cap
Mid Caps: Mid caps were totally flat, up 0.23% from yesterday, with a complete doji on the daily candle, opening and closing at virtually the same point.
Small Caps: Small caps were slightly up by 0.59%, closing at a new all-time high of 18,264. Small caps have been leading the market upwards.
Nifty Bank Overview
Bank Nifty gained half a percent today, looking reasonably repaired from the recent damage. It appears to be forming a flag pattern, which suggests it could attempt to reach new highs over the next month or two. Rate cuts would be very beneficial for the bond books that banks hold.
Advanced Declined Ratio Trends
The advanced-decline ratio was slightly positive today, with 292 advances to 207 declines, indicating the broader market leaned towards the higher side.
Nifty Heatmap
In today’s heat map, SBI Life and HDFC Life performed well, with HDFC Bank up 0.6% and ICICI Bank up 1.4%. Titan was up 1%, but there weren’t many significant gains in the Nifty 50 stocks. In the Nifty Next 50, there were more green areas. Public sector enterprise stocks took the lead, with HAL on new orders, REC, and PFC rising on expectations of an interest rate cut. SBI Life was up 2.9%, Bajaj Holdings was up on the Bajaj Home IPO, and Geo Finance was up 1.5%.
Sectoral Overview
Energy stocks lost 0.7%, metal stocks lost 0.6%, and the rest were within plus or minus half a percent. Nifty was absolutely flat. Over the last week, Nifty has performed slightly positively, while metals have underperformed.
Sectors of the Day
Nifty Financial Services Index
Financial services stocks were up 0.8%, fast approaching a new all-time high. SBI Card, LIC Housing, Power Finance, SBI Life, and REC were all up, with interest rate cuts already being baked in. This segment might see a sell-on-news reaction if the rate cut materializes, but it is developing nicely.
Stocks of the Day
Godrej Industries
Godrej Properties was up almost 14% today, and Godrej Industries also has a good stake in Godrej Properties. Godrej Properties is planning to develop two new projects in Gurugram, where land prices are skyrocketing. This indicates that big developers are still optimistic about the real estate sector, contrary to some beliefs that it is just a temporary surge.
Story of the Day: Retail Stampede into SME IPOs
Disclaimer: I don’t know too much about SME IPOs, and I have never invested in one. However, I have heard and read about them recently. There is a lot of narrative around SME IPOs, and rightly so, because they seem to be all over the place. For example, JB Laminations, an IPO listed today, opened at a 90% premium and closed at a 99% gain. The IPO price was around 146, and it closed at 291 on day one, with significant buying interest.
Yamaha Showroom IPO Example: A recent example is a Yamaha showroom with eight employees and two rented showrooms, where the company was going to raise twelve crores for about 38% equity. However, there were bids that poured in for around 4,000 to 4,700 crores. Of course, only twelve crores were raised, and the rest was returned, but this shows the demand side of the market. The supply of such IPOs is still very limited, which cannot satisfy the demand. When such an event happens, some players will try to game the system, overprice, or piggyback on businesses, but these are part of the market dynamics.
Market Dynamics: There is no innocence in investors who are flocking to SME IPOs. If they are investing to make a quick buck, they are essentially gambling, and sometimes they will lose. The role of the regulator is not to protect investors but to provide a level playing field and prevent fraudulent activities. Retail investors are increasingly buying into high-risk SME IPOs by choice, previously dominated by high-net-worth individuals, drawn by the strong listing gains.
Issue Statistics: The number of SME IPOs in the first half of this year was 105, similar to the previous year. The average issue amount is 32 crores, raising a total of 3,200 crores. This is not a significant amount compared to the 22,000 crores coming in every month from SIPs. The market cap of all SME listed companies is only 1.7 lakh crores, with 185 companies moving to the main board.
SEBI’s Role: SEBI has noticed misleading public announcements by some SME companies and should take action. However, the entire segment should not be punished because of a few bad players. SEBI has introduced a 90% cap on listing day gains, with about half of the SME IPOs this year gaining between 90% and 400%.
Market Behavior: If we argue that SME IPOs are too risky for retail investors, then perhaps retail investors should be banned from participating, or the minimum lot size should be increased to 20 lakhs. The market needs more supply of IPOs to absorb the liquidity; otherwise, existing stocks will continue to rise in valuation.
Closing Thoughts: These are my thoughts on SME IPOs. I could be totally wrong or totally right; that’s for you to decide. Let us know your thoughts on SME IPOs and what kind of manipulation you believe is happening in this segment. I have no clue what kind of fraud is happening, but let’s take an example: Paytm listed at Rs 2000, and the management said they left so much on the table. Then it went to Rs 300. How is that different from SME IPOs?
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