Don't invest in stocks blindly! Sebi cautions investors against dealing in SME segment based on market tips, social media inputs

Capital market regulator Sebi on Wednesday issued an advisory cautioning investors against blindly investing in securities listed in the SME segment based on random tips received from others or from social media platforms. The move comes at a time when there is a significant increase in the number of SME issues in the country and growing investor interest in the segment.

Urging investors to be "careful and watchful of the aforesaid patterns and exercise caution while investing in such securities", Sebi cautioned market participants to refrain from relying on unverified social media posts and making investment decisions on the basks of "tips or rumours". 

Here are 10 key things to know about this development: 

• "This advisory is being issued in the interest of investors," read the Sebi advisory dated August 28. 
• During the last decade, more than Rs 14,000 crore has been raised through the SME platform. Out of that amount, around Rs 6,000 crore was raised in FY24 itself.
• However, it has been found that some of the SME companies and/or their promoters "have been resorting to certain means that project an unrealistic picture of their operations" post-listing.
• "Such companies/promoters have been seen to make public announcements that create a positive picture of their operations," the regulator said.
• "These announcements are typically followed up with various corporate actions such as bonus issues, stock splits, preferential allotments, etc," it noted, adding that such actions create a positive sentiment amongst investors.
• This induces them to purchase such securities, said Sebi.
• "Simultaneously, this also presents an easy opportunity to the promoters to offload their holdings in such companies at elevated prices," the advisory read. 
• Sebi has time and again passed orders against such entities.
• "It can be seen that the modus-operandi of these entities follows a pattern that is by and large similar to what has been mentioned above," Sebi noted. 
• In addition to the mainboard IPO platform, a separate, dedicated platform for the SME segment was operationalised on the exchanges in 2012. This platform serves as an alternative source of raising funds for emerging businesses, Sebi mentioned. 

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