The BSE SME index closed the year at 802.27 or 283.36 points below the opening for the year 2015 and 282 points below the closing for the previous year, leaving little room for doubt that the year ahead was unlikely to be very positive.
On the positive side however, the trade volumes and market turnover appears to have substantially improved during the year, powered by the liquidity generated by the currency carry trade. The currency carry trade allowed venture funds and angel funds, to raise resources at very low dollar costs and deploy the same in the Indian SME market equities to raise high returns.
On the last day of December 2014, the turnover in the SME index was barely 8 lakh share translating into a turnover of just Rs 6.26 crore. But on 31 December 2015, the turnover was 11 lakh shares. But the market turnover slipped to Rs 4.45 crore.
But in march 2015, at the peak of the Foreign Institution flows, trade volumes had peaked at 25 lakh shares translating to a turnover of close to Rs 21 crore. The slippage in the volumes and market sentiment, mirrored the risk aversion that was increasingly taking hold of institutional investors, particularly venture and angel funds.
Most of these funds rode on the back of the high petroleum prices that left Arab sovereign funds with the surplus resources, prompting yield fishing among them. The yield fishing in turn led them to emerging market start up companies particularly the BSE SME index listed companies.
Since then with the crash in international petroleum prices, the angel/venture/sovereign funds are exiting in droves and moving away from the Indian and other emerging markets scouting for safe havens, in particular the U S dollar investments.
With the first hike in the U S interest rates, the dollar has ceased to be a carry trade vehicle. Instead, the increased cost of funds, arbitrage opportunities in emerging markets have shrunk, traders said, prompting an exodus.
In the next year, more US interest rate hikes were expected, partly to bring back foreign savings into U S investments. The situation does augur well for emerging markets funds, dependent on angel/venture funds, traders said.
Besides, many of the companies have been hit by shrinking export opportunities in Western Europe and North America. In all these markets, the risk premiums have also escalated leaving some of the SME’s with the large liquidity gaps. Fears are that the situation was likely to worsen during the first half of 2016, unless budget 2016 instills some remedial measures for the SME’s. Among the measures are rescheduling of debt and reduced interest on loans.
Image Courtesy: The Hindu Business Line
