SEBI’s whole-time member Ashwani Bhatia, on Monday, urged investment bankers and chartered accountants to give the right advice to small and medium enterprises (SME), that are looking to raise money through initial public offers (IPOs).

“Instead of going straight to an IPO, a better route might be to approach an angel fund or a venture fund first,” said Bhatia, speaking at the CII’s Financing 3.0 Summit.

“Nobody is actually saying no. I am a banker, and we were taught to say no when necessary,” Bhatia added.

Bhatia said that unfortunately, this rigorous approach is sometimes lacking in the current ecosystem, including among chartered accountants, merchant bankers, and exchanges.

Bhatia also noted that some SMEs have very high expectations.

“You can’t expect parabolic growth,” he said.

“The role of the CAs and bankers is to temper these expectations. Opportunities are available, but it is important to proceed cautiously,” he said.

He advised advisors to “be good doctors to these companies. Don’t give them steroids when they can manage with paracetamol.”

SEBI has been raising concerns about SME listings. Last week, the regulator highlighted issues with the overly optimistic portrayals presented by promoters of SMEs seeking to go public.

“Post listing, some of the SME companies and/or their promoters have been seen to make public announcements that create a positive picture of their operations. These announcements are typically followed up with various corporate actions such as bonus issues, stock splits and preferential allotments,” the regulator said in a note recently.

The recent ₹12-crore IPO of Resourceful Automobile, a Delhi-based company with two outlets and eight staff members, generated significant interest, receiving bids totalling nearly ₹4,800 crore.

Ashishkumar Chauhan, MD & CEO of the National Stock Exchange (NSE), said the exchanges have taken cognisance of the issues in SME listings. “We will maintain the balance, and a stricter guideline is expected. Not all SMEs are doing good,” said Chauhan.

Agreeing with SEBI, Chauhan cautioned about the high valuations in the SME market.

“There is a perception that currently when the markets are doing very well, many of the fly-by-night or not so good business are still coming,” Chauhan said .

“SEBI has also made a statement that it will come out with new regulations on SME which will be much tougher. NSE has already lifted the bar several notches and will continue to do that going forward as we see the euphoria building up,” Chauhan said.

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