The Securities and Exchange Board of India (Sebi) has cracked down on a major stock manipulation case involving DU Digital Global Ltd, imposing penalties and market bans on a group of 26 interconnected entities. The case has reignited serious concerns about the structural weaknesses and investor protection mechanisms within India's rapidly growing small and medium enterprise (SME) stock market segment.
The DU Digital Manipulation Scheme
In an order dated 31 December, the market regulator slapped a collective penalty of ₹1.85 crore on the group and barred them from the securities market for varying durations. The action was taken for artificially inflating the price and volume of DU Digital Global shares through a series of synchronized, circular, and reversal trades.
DU Digital Global, which got listed on the NSE's SME platform in August 2021 at an issue price of ₹12 per share, witnessed an astronomical rise. The stock skyrocketed by 1,392.5% between 26 August 2021 and 31 March 2023. It reached an all-time high of ₹296.05 on 11 November 2022, marking an incredible 2,467% increase from its listing price.
Sebi's detailed trade analysis revealed that the accused entities were the dominant force behind this price movement. During crucial phases of the rally, their trading activity accounted for a massive share of positive price contributions and new highs. Alarmingly, in one specific period, their contribution to the net market's last traded price exceeded 100%, completely overpowering genuine market forces. The same group also played a significant role during the subsequent price decline.
The regulator uncovered extensive circular trading over 26 trading days, where such fabricated trades made up nearly 48% of the total market volume on those days.
Structural Flaws in the SME Segment
This incident underscores the inherent vulnerabilities of the SME platform. Designed as a lighter-regulation venue to help smaller companies raise capital, it has increasingly turned into a hotbed for speculative trading. Factors like thin public floats, minimal institutional investor presence, and the allure of multi-bagger returns have attracted a flood of retail investors into a space 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," noted K.C. Jacob, partner at Economic Laws Practice. "Monitoring potential irregularities in SME trading can be particularly complex, given the smaller scale and complex nature of transactions."
In response to growing concerns, Sebi approved several corrective measures in December 2024. These included:
- Raising the minimum application size in SME IPOs to ₹2-4 lakh from ₹1 lakh to attract more informed investors.
- Tightening profitability thresholds for listing.
- Imposing limits on promoter offer-for-sale and phased lock-ins for excess promoter holdings.
- Capping the use of IPO proceeds for general corporate purposes and barring the use of funds to repay loans to promoters.
However, experts like Sidharth Kumar, senior associate at BTG Advaya, argue that these changes primarily address issuer-side disclosures. "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," he said. Kumar suggested exploring alternative structures, such as SME-focused mutual funds managed by professionals, to channel retail money more safely.
Call for Stronger Post-Listing Oversight
Recent Sebi actions indicate that enforcement often occurs after the damage is done, highlighting a need for proactive surveillance. In May 2025, Sebi passed an interim order against Synoptics Technologies Ltd, alleging diversion of IPO proceeds to fictitious entities and using funds to inflate its share price on listing day. It also barred the involved merchant banker from new assignments.
In August 2024, the regulator issued an advisory warning investors about SME firms making overly optimistic announcements followed by corporate actions like bonus issues, which promoters then used to exit at inflated valuations.
"SME funding is essential for economic growth, but it cannot come at the cost of investor trust," emphasized Abhiraj Arora, partner at Saraf and Partners. "As fundraising sizes increase, regulatory oversight will naturally have to evolve to protect retail investors." He advocated for targeted safeguards like post-listing reviews of fund utilization, similar to monitoring committees for mainboard IPOs, without burdening SMEs with excessive compliance costs.
The frenzy in SME IPOs, which saw fundraising grow at a 46% CAGR over the past decade (outpacing mainboard IPOs), is showing signs of cooling. Tighter regulations and weak secondary-market performance have dampened sentiment. Data shows median subscriptions for SME IPOs plunged from 137 times in 2024 to just 7 times in 2025, while listing gains collapsed from nearly 40% to about 4%. This waning retail interest signals a market becoming wary of the risks exposed by cases like DU Digital Global.
