The SME platforms on both the exchanges were launched for small companies that were not eligible to list on the main platform. Since compliance requirements are less stringent and companies are small, the capital market regulator had raised the entry bar for investors compared to the normal IPOs. But, with the stock frenzy spreading wide, many investors found value in many shares listed on the SME platform.
“These are micro-cap securities with low base. Average turnover is less than Rs 50 crore and it is very easy to have multi-fold growth achieved in these companies with the growth capital. Economies of scale are in their favour,“ said Mahavir Lunawat, Managing Director at Pantomath Capital Advisors, a leading merchant banker in the SME IPO space.
Since January 2015, 42 stocks on the SME have at least more than doubled. In the main IPO market, three stocks have more than doubled.
While most of the activity is being driven by savvy individual investors, some domestic institutions have begun showing interest in stocks on the SME platform.
In 2016, chemical maker Valiant Organics got investment from Reliance Mutual Fund for its SME IPO. In another instance, DSP Blackrock had picked up shares in Momai Apparels.
“Institutional interest is gaining day by day with more and more companies coming up and quality stocks giving superior performance. There have been large brokerages and mutual funds which have taken interest in some of the scrips,“ said Lunawat.
“Their participation is far below the desired level.“
In the first five months of the current year alone, 44 companies have launched IPOs on the SME platform, raising Rs 553.65 crore as against Rs 537.27 crore raised by 67 companies in all of 2016, showed data from IPO market tracker Prime Database.Prior to that in 2015, 43 companies raised Rs 260.21 crore through SME IPO route. Average SME IPO size has also gone up to Rs 11 crore this year from about Rs 6 crore in 2016. The average market capitalisation is Rs 50 crore. Till date, 183 companies have debuted on BSE SME to raise a total of Rs 1,439.45 crore.
Analysts however warn that the stocks on the platform are risky for retail investors.
“The SME space represents good growth potential but risk is also higher here. Hence, Sebi has a high minimum investment size which keeps retail investors out,“ said Pranav Haldea, Managing Director at Prime Database.
Others said there is concern of liquidity and promoters round-tripping funds. “Often it is the close circles of promoters who apply in these IPOs. Also because of the fervour around IPOs, even SME IPOs get oversubscribed,“ said Arun Kejriwal, founder of Kris Research.
Source: Economic Times