Indicating favorable market sentiment and big capital trends, small and medium enterprises (SMEs) listed on various stock exchanges across the country have been able to raise substantial capital. As many as 135 SMEs have been listed till May 3, 2016 on the SME platform of the Bombay Stock Exchange (BSE). Together, the enterprises have a market capitalization of Rs. 6,860 crore and have been able to mop up more than Rs. 970 crore, which means that the sector has succeeded in getting the attention of investors.
“The number of SME listings is going up every week, which means that the market has responded positively to the sector. They have also been able to raise substantial funds through investors. This means that they have succeeded in attracting the attention of investors,” said Samira Gilani, a small investor in the BSE.
“These exchanges are well-integrated with the already established main exchanges such as the BSE and NSE. Therefore, the effort needed to attract investors has been easier. SME exchanges have also benefited from the broker, sub-broker network of the main exchanges,” said Ravish Kumar, an investor in the stock market, explaining the response. “Generally speaking, it is a big thing for a company to get listed on a stock exchange. It adds to their credibility and is generally considered a prestigious step,” said Ravish Kumar.
Experts from the industry had earlier predicted that SME stocks may not be able to raise capital through their Initial Public Offerings (IPOs) due to the high risk involved.
“Although they are high-risk investments, SME stocks can also get you the highest returns. So, investors have decided to play the gamble rather than playing safe,” said Rahul Dev, another investor.
The SME platforms of BSE and National Stock Exchange (NSE) were launched in 2012 with the objective to help small and medium enterprises raise capital. BCB Finance Ltd and Thejo Engineering Ltd were the first SMEs listed on the BSE and NSE platforms, respectively. SME exchange platforms make it easier for investors to access and invest in businesses. The government wants to bolster the SME sector that employs around 40% of the country’s workforce and generates millions of jobs, especially at the low-skill level. The sector alone accounts for 45% of the total manufacturing output and 40% of the total exports.
Why SME exchanges
Generally, a startup finds it difficult to arrange funds, particularly in its early stage. Even if it does manage to arrange financial resources, the capital often comes at high interest rates. In order to raise money for the next stage of growth, companies look to generate funds via capital markets. An exchange comes in handy in such a situation. It is also relatively easier to get listed on a dedicated exchange rather than the main one. An investor can identify enterprises with potential, while on the other hand listings lead to improved visibility and credibility for enterprises.
Registered enterprises have a 73% greater likelihood of attracting investors than enterprises which have not been listed, according to a survey conducted by Deskera.