The DU Digital Global Ltd stock manipulation case once again draws attention to vulnerabilities in India’s rapidly expanding small and medium enterprises (SME) segment, raising questions about whether investor protection mechanisms are keeping up with rising retail participation.
In its 31 December order, the Securities and Exchange Board of India (Sebi) penalized a closely knit group of 26 entities a total of ₹1.85 crore and barred them from the securities market for varying periods for manipulating the price and volume of the DU Digital Global stock through synchronized, circular, and reversal trades.
Listed on the SME platform of National Stock Exchange of India Ltd (NSE) in August 2021 at ₹12 a share, the stock surged 1,392.5% between 26 August 2021 and 31 March 2023. It hit a peak of ₹296.05 on 11 November 2022, a 2,467% rise from the listing price.
In Sebi's investigation, trade-level analysis showed that the 26 entities played a dominant role in driving price movements. During key phases of the rally, they accounted for a large share of positive last-traded-price (LTP) contributions and new high prices (NHP). In one patch, their contribution to net market LTP exceeded 100%, effectively overwhelming genuine market forces.
The same group also played a significant role during the price decline, highlighting how tightly the stock’s movements were tied to their activity.
The regulator also observed extensive circular trading over 26 trading days, with such trades accounting for nearly 48% of total market volume on those days.
“Du Digital Global Ltd categorically clarifies that it has no affiliation, association, or involvement with the 26 individual noticees referred to in the SEBI order, except to the extent that some of them may be independent public shareholders who traded in the company’s shares on the stock exchange,” said a company spokesperson.
Speculative trading hotbed
The case is the latest reminder of the structural vulnerabilities in the SME segment, which was designed as a lighter-touch platform to help smaller companies access capital, but has become a hotbed of speculative trading. Thin floats, low institutional participation, and the lure of exponential returns have drawn large numbers of retail investors into stocks where price discovery can be easily distorted.
“One of the main issues is that Sebi has delegated the responsibility of SME listings largely to the exchanges,” said K.C. Jacob, partner at law firm Economic Laws Practice. “Monitoring potential irregularities in SME trading can be particularly complex, given the smaller scale and complex nature of transactions.”
To be sure, the regulator has been stepping up its oversight. In December 2024, it approved a slew of measures aimed at curbing the misuse of funds and improving transparency in SME initial public offerings (IPOs).
It raised the minimum application size to ₹2-4 lakh from ₹1 lakh to limit participation to more informed investors, tightened profitability thresholds, imposed limits on promoter offer-for-sale, and subjected excess promoter holdings to phased lock-in periods.
The regulator also capped the use of IPO proceeds for general corporate purposes and barred SMEs from using issue funds to repay loans to promoters or related parties.
But “these changes are largely from the point of view of issuers and disclosures,” said Sidharth Kumar, senior associate at disputes and transactional law firm BTG Advaya. “But something also needs to be done to give a sense of caution to investors. In the SME market today, the only way retail investors can participate is through direct investment in shares.”
Kumar said Sebi should explore alternative structures to channel retail money into the segment. “One discussion that keeps coming up is whether retail investors should be restricted from directly investing in SME stocks and instead allowed exposure through a mutual fund-like structure,” he said.
“Just as we have small-cap funds, asset managers could run SME-focused funds managed by professionals who understand the risks, instead of retail investors chasing price frenzy.”
Post-listing oversight needed
Besides, the regulator’s recent actions suggest that enforcement has often followed damage rather than prevented it. In May 2025, Sebi passed a strongly worded interim order against Synoptics Technologies Ltd, alleging that the SME diverted IPO proceeds to fictitious entities and used part of the funds to artificially inflate its share price on listing day. In a first-of-its-kind move, it also barred the merchant banker involved from taking on new IPO assignments, saying its actions posed “a serious risk to investors”.
In August 2024, it issued an advisory warning investors about SME companies making overly optimistic announcements followed by corporate actions such as bonus issues and stock splits, which were then used by promoters to exit at inflated valuations.
Experts said stronger post-listing oversight may be needed. “SME funding is essential for economic growth, but it cannot come at the cost of investor trust,” said Abhiraj Arora, partner at law firm Saraf and Partners. “As fundraising sizes increase, regulatory oversight will naturally have to evolve to protect retail investors and preserve confidence in the SME market.”
“While SMEs should not be burdened with the same compliance costs as mainboard issuers, targeted safeguards such as post-listing reviews of fund utilization are necessary (monitoring committee in mainboard IPO),” Arora said.
Waning retail interest
Over the past decade, growth in SME IPO fundraising has outpaced the mainboard, expanding at a compound annual growth rate of 46%, compared with 29% for mainboard IPOs, according to the Primary Pulse 2025 report by investment banker Pantomath Capital Advisors.
That momentum, however, has begun to slow. Mint reported on 1 January that Sebi’s tighter regulations have dampened sentiment in the SME space, with the number of IPOs on SME platforms rising just 12.5% in 2025, sharply lower than the 31% surge seen in 2024.
Retail investors, who fuelled the SME IPO frenzy in 2024, have also started pulling back. Mint reported on 13 November that after median subscriptions touched 137 times and listing-day gains neared 40% in 2024, retail interest cooled sharply in 2025. Median subscriptions fell to seven times, and listing gains shrank to about 4%, according to Prime Database, as weak secondary-market performance caught up with primary-market hype.
Mainboard IPOs also slowed but proved more resilient, with median listing gains easing from 21% to 5% and retail subscription declining from 14% to 8% between 2024 and 2025.