The sentiment regarding small and medium enterprises in the market remains positive and listings this year for the category are poised to surpass the 2022 numbers.
Data shows that the previous calendar year saw 109 initial public offerings (IPOs) by SMEs — 53 on the BSE and 56 on the NSE — with a total mop-up of Rs 1,875 crore.
“SME listings have been good this year and this has largely been on account of institutional participation in the IPOs. Market sentiment is good at the moment, and we expect 65-70 more on our platform by the end of this calendar year,” said Sameer Patil, chief business officer at the BSE.
Seven of the 64 to have listed this year have seen a mop-up of over Rs 50 crore. Spectrum Talent Management, the largest of the lot, raked in Rs 97.5 crore. In comparison, the largest SME listing of 2022 was of Rachana Infrastructure for Rs 72.4 crore.
However, the IPO process tends to take more time nowadays, owing to regulatory requirements and due diligence.“The market environment is no doubt conducive for SME listings but processes take more time nowadays with stricter compliance norms. The due diligence process and selection of companies is a time-consuming exercise because no one wants to rush with an IPO only for it to end up being a flop,” said Jyoti Prakash Gadia, managing director of Resurgent India.
Investors, though upbeat, are also playing it safe, he pointed out. This is because those who participated in the earlier listings may first like to gauge the performance of the earlier firms before betting on more SMEs.
“We expect the remainder of the year to see 10-15% more listings by SMEs in comparison to the first half,” Gadia added. Both Gadia and Patil said merchant bankers are now focusing on quality over quantity and strive to bring the right firms to the platform.
“Regulatory changes have only helped streamline the process and this has made the drill easier for merchant bankers and companies,” said Patil.
SMEs naturally show faster growth, given the businesses are at a nascent stage. Market players say that SME stocks are ‘high-beta’ compared to mid-caps and small-caps. This means that they show a 15-20% swing compared to a 10% swing in midcap stocks.Though this makes them a risky proposition, it also means higher growth opportunity.
“Investing in SME stocks is not suitable for all categories of retail investors,” said an equity strategist at a brokerage. This is because of the higher lot size and low liquidity.“These are more suited to HNIs and the wealthy, who can afford to pick up bigger lots.”