Currently, the minimum lot size for the SME segment is fixed at Rs 1 lakh, which means that an investor needs to put in at least that much to trade in the shares of SME companies.
While BSE is of the view that the lot size should be retained so that uninformed small investors are kept away, NSE feels the segment has matured over the years, and investor participation should be now increased.
Both BSE and NSE launched their separate SME platforms in 2012, and have been aggressively pitching their segment to SMEs across the country ever since. While BSE has more than 120 companies listed on its SME segment, NSE has 11 entities on board so far.
Interestingly, the issue of minimum lot size in the SME segment has been highly debated ever since the segment was launched in 2012. Market participants have been asking the Securities and Exchange Board of India (SEBI) to review the lot size and also the minimum 25 per cent equity dilution required at the time of listing.
“We have taken up the issue with the capital market regulator and will have to wait for the regulator to decide,” said Ravi Varanasi, who heads business development at the NSE, while addressing a seminar on micro, small and medium enterprises (MSME) at the recently-concluded Make in India Week in Mumbai.
“It has been three years since the launch of the segment and it has matured now. We are seeing a lot of traction. Market participants have submitted their suggestions to the regulator,” he said on the sidelines of the event.
Promoters of many Maharashtra-based SMEs present at the event enquired about the minimum lot size and whether that would affect liquidity in their shares, post listing.
A BSE spokesperson, meanwhile, said the exchange is of the view that the risk attached with investing in an SME company is higher compared to the larger companies listed on the main board of the exchange, so an uninformed retail investor should be kept away from the segment. BSE is not in favour of lowering the minimum trading lot size for the SME segment, he added. An email query sent to SEBI remained unanswered till the time of going to press.
Mahavir Lunawat, Managing Director, Pantomath Capital Advisors Pvt Ltd, an investment banking entity specialising in SME issuances, says there are pros and cons attached to the review of the minimum lot size.
He added, “Minimum lot size framework in SME capital markets safeguards small retail investors. Only investors with certain minimum tolerance level are exposed to SME stocks, as such stocks characteristically are high-risk investment instruments”.
“The flip side of minimum lot size is its restrictive impact on liquidity. The concern of low liquidity, however, is addressed by the mechanism of mandatory market making, which provides a cushion in secondary market in the role of counter party.”
Interestingly, this comes in the backdrop of the government’s thrust on the MSME sector and its efforts to bring more SMEs on the exchange platform for better visibility, valuation and transparency.
At the MSME seminar, Surendra Bagde, Development Commissioner (Industries), Maharashtra urged SMEs, stock exchanges and other market participants to work on a five-year planning programme to create a robust ecosystem for SMEs wherein such companies gain from technology, finance and skill development.
“We need to measure success on parameters like increased productivity and profit margins. We should select 200 companies from across the state and convince at least 25 of those to list on exchanges,” said Mr Bagde.
Source: The Hindu