Ashish Kacholia opposes heavy-handed SME IPO crackdown: ‘Don’t punish the whole market for a few bad apples’

The market veteran is of the view that regulators shouldn’t throw the baby out of the water and throttle fresh capital issues, but instead encourage investors to do proper due diligence through mass advertising campaigns.

“We have to believe that investors are wise people who will do their homework before putting their hard earned money in specific companies, this is capitalism at its best. Regulation has to be light touch with adequate disclosures up front and stringent penalties for wrongdoings,” Kacholia said.

SME IPOs have been in the news for quite some time now, thanks to strong subscription numbers and listing gains. So far this year, over 25 SME offers have received subscriptions of 500 times or more.

Recently, Sebi issued a warning to investors against promoters painting an unrealistic picture of their operations.The regulator said it has come to the notice that, post listing, some of the SME companies and their promoters have been resorting to certain means that project an unrealistic picture of their operations.Kacholia said the SME platform is one of the biggest fundraising opportunities for SMEs to access public funds to grow their business and create value for stakeholders.”There will be a few rotten eggs, but overall this is going to fuel innovation by dynamic young founders and drive economic growth for India. I remember a time 25-30 years ago when companies like Suven Pharma, Nagarjuna Construction, Neuland Labs, Vimta Labs were all small companies and were able to access capital markets without a 1,000 page prospectus and today are giant market caps,” he said.

Leading exchange NSE also intensified its scrutiny of companies seeking to list on its SME platform as it introduced a new eligibility requirement, where companies must now demonstrate positive Free Cash Flow to Equity (FCFE) for at least two of the three financial years leading up to filing their draft IPO papers.

Kacholia said that most SME companies are in investment mode and are fast growing. They need to raise capital to fuel their working capital and capex needs, so how can they be FCF positive?” the investor questioned.

“This is exactly the kind of disastrous thinking that is not in our line with our long term economic growth ambitions as a country. The right approach would be to build up regulatory capacity to evaluate clearance at DRHP stage and subsequent investigation if wrongdoing is suspected. All our exchanges and regulators are well funded to do this investment in infra and people,” he said.

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