Most stock exchanges with dedicated platforms for small and medium enterprises, including top bourse BSE, are seeing overwhelming retail participation in SME stocks, a report said.
According to a study by World Federation of Exchanges (WFE), retail investors dominate the BSE SME market, with most being high net worth individuals due to the minimum lot size of USD 1,526 prescribed by regulator SEBI.
“The initial investors in public offers (on BSE SME) tend to be individuals who know the companies because they are from the same region or are involved in the companies in some way (vendors or customers),” the WFE report said.
However, the report, which has taken BSE along with few other exchanges as case studies, noted that as a company on BSE SME platform becomes more established, the mix changes to include institutional investors.
“Investors in SME markets tend to be overwhelmingly retail though some markets (such as China’s (Chi Next) show a higher level of institutional participation,” WFE said.
As per the study, investor composition is a consequence of a variety of factors such as the national policy environment, the extent of development of institutional investor base and the domestic propensity to save and invest.
“The exchange’s traditional investor base and the focus of its intermediaries will also play a role,” it added.
Looking at China’s SME market, the report noted that ChiNext tends to have higher institutional participation than other markets, driven by investor interest in the market that represents the ‘new’ Chinese economy.
London-based WFE observed that stock exchanges, policy makers and market intermediaries will have to work together to determine what is most appropriate for the SME market.
“It is important to note that even within the narrow realm of SME financing, while exchanges have a role to play and certainly seem to recognise this, they are not the sole solution to SME funding challenges,” the report said.
Other players such as banks, private equity and venture capital firms also have an important role to play, it added. BSE had launched its SME platform in March 2012 and has seen listing of more than 100 companies.
The platform provides opportunity to SME entrepreneurs to raise equity capital for growth and expansion. WFE represents 64 regulated exchanges across the world.
Source: The Financial Express
