Recently, the National Stock Exchange of India (NSE) introduced a new rule that might affect your next investment decision. As per the new rule which was effective from 4^th July, the NSE is applying a limit to the extent a stock price can rise on the first day of trading on their platform for smaller companies, NSE Emerge.

The new rule caps the opening price to a maximum of 90% above the price the company sold its shares during the IPO. 

The NSE wants to make the stock market experience fairer and less volatile for investors, especially when it comes to SME IPOs. Sometimes, these stocks witness huge price surges on the first day, which is risky. With the new cap set in place, this cap can limit an abrupt jump from happening.

It is worth noting that this rule only applies to SME IPOs on NSE Surge and not to bigger, reputed companies on the main stock exchange.

How Does This New Capping Rule Affect Your SME?

While the initial price surge may be curbed, the new cap does not necessarily hinder your company’s potential. Here’s how you can adapt your IPO strategy:

Realistic pricing: The focus now shifts towards a more realistic IPO price that reflects your company’s true value and growth potential. As SME IPO Consultants, we can assist you in conducting thorough valuation exercises to establish a fair and attractive price point.

Long-term vision: Investors are increasingly looking for companies with strong fundamentals and a clear roadmap for future success. 

Building investor confidence: Transparency and clear communication are paramount. 

7 Useful IPO Strategies For SMEs Based On The New Capping Rule

As one of the upcoming IPO Advisory Firms in India, we wanted to explore a way ahead for SMEs in light of this new capping rule at NSE Emerge. Here’s what we suggest and don’t forget to read the two bonus tips at the end:

Tip #1: Conduct a thorough valuation to determine a fair and realistic IPO price. This price should represent your company’s true value and growth potential which will help attract investors under the new price cap.

Tip #2: Explore the possibility of a pre-IPO placement to institutional investors. Using this approach may help establish a benchmark price and generate interest before the public offering. 

Tip #3: Express transparency when it comes to communicating your company’s financials, plans, and potential risks. This helps build trust with investors who may be more cautious towards excessive volatility.

Tip #4: Focus on your company’s long-term vision and growth strategy. Showcase a clear roadmap for future success that goes beyond short-term price gains. 

Tip #5: Ensure your company has a strong financial track record with consistent profitability and growth. This will be a more critical aspect investors will consider due to the new price cap, where initial price jumps will be limited.

Tip #6: Demonstrate a skilled and experienced management team with a proven ability to navigate challenges and drive growth. This inspires investor confidence.

Tip #7: Clearly articulate your company’s USP and competitive advantage. This will help you stand out in a crowded market and attract investors seeking promising opportunities.

Bonus Tip #1: Explore other avenues for raising capital including private equity investments or venture debt to complement your IPO strategy.

Bonus Tip #2: Develop strategies to ensure post-IPO liquidity for your shares. This can involve engaging market makers or encouraging employee stock ownership plans.

Therefore, by implementing these strategies SMEs can adapt to the new normal of the NSE Emerge price cap. They can position themselves for a successful IPO that attracts long-term investors. Remember, for a well-planned and realistic approach, you may reach out to consult us.