Small is attractive. But in the stock market, it appears that very small is even more attractive, judging by the responses and listing gains garnered by small and medium enterprises on the bourses.
For instance, Chennai-based Basilic Fly Studio set a record on the SME platform by attracting investments of ₹14,169 crore against an issue size of just ₹66.35 crore; Oriana Power received bids worth ₹7,000 crore for an issue of ₹60 crore; Krishca Strapping Solutions, a manufacturer of high-tensile steel straps and seals, saw a response of ₹4,391 crore against an issue size of just ₹20 crore.
As investor appetite grows, several SME companies are entering the capital market swiftly. Already, 108 companies have hit SME platforms, which is four times higher than the mainboard’s 27 issues.
- Also Read: SME IPO: Basic Fly Studio gets record subscription of ₹14,170-crore for ₹66-crore IPO
Diversified companies
It is heartening to see companies from diversified segments such as healthcare, infra, packaging, visual studio, jewellery, spices, power, IT, etc., tap the SME market. Interestingly, most of these companies have seen an overwhelming response from institutional and small investors. Recently, retail investors have shown more interest compared to institutional (QIBs) or HNIs (Non-Institution investors).
Basilic Fly Studio saw the retail portion being subscribed by 415 times, against QIB bids of 116 times; however, the NII portion witnessed even better subscription at nearly 550 times. CPS Shapers, whose shares were listed at ₹472.50 against an IPO price of ₹254, saw the retail portion getting subscribed 301 times, outshining the 198 times recorded by QIBs.
Strong performance
Investors’ faith has not been belied so far. At least six companies, since July, have more than doubled on the listing day itself. Of the 13 listed in H2-FY23, except Sahaj Fashions and Crop Life Sciences, the others are trading in the positive territory with handsome returns.
In fact, only 20 stocks out of over 108 companies that hit SME platforms in 2023 posted negative returns.
NSE Emerge and BSE-SME were launched in 2012 and helped several SME companies raise funds through these platforms. An issuer company whose post-issue paid-up capital is not more than ₹25 crore, having a positive net worth and net tangible assets of ₹1.5 crore, is eligible to list its securities on the SME platform.
The market lot has been fixed in such a way that it requires a minimum investment of ₹1 lakh. For a company that fixes the issue price at or below ₹14, the market lot is 10,000, and for a price above ₹1,000, the lot size is 100. Perhaps the time has come to tweak the lot size higher, if not double, to keep unnecessary euphoria under check. As the lot will be the same post-listing, non-serious investors, who aim only for listing gains, may turn cautious.
Analysts’ report
It is now voluntary for companies to get research analysts’ reports. However, in recent times, none appeared to have voluntarily approached analysts for a review of their companies. Exchanges should encourage more companies to seek research reports so that investors can make an informed decision.
Retail investors should also be cautious with regard to SME stocks as they may get stuck with the stocks due to a lack of liquidity after the initial euphoria. Besides, companies may take time to scale up their operations, for which investors need patience. If corporates, on their part, improve governance issues, especially on disclosures, it will benefit everyone in the value chain.
With a vibrant SME platform, exchanges are already achieving the primary goal of inclusive growth.