Dream run at SME platform needs some moderation

Small is attractive. But in stock market, it appears very small is even more attractive, if one goes by the responses and listing gains garnered by small and medium enterprises on the bourses.

For instance, Chennai-based Basilic Fly Studio set a record at the SME platform by attracting investments of ₹14,169 crore against the issue size of just ₹66.35 crore; Oriana Power received bids worth ₹7,000 crore for an issue of ₹60 crore; Krishca Strapping Solutions, manufacturer of high-tensile steel straps and seals, saw a response of ₹4,391 crore against the issue size of just ₹20 crore.

As investor appetite grows, several SME companies are entering the capital market swiftly. Already, 108 companies have hit SME platforms, four times higher than (BSE and NSE) mainboard’s 27 issues.

Also Read: SME IPO: Basic Fly Studio gets record subscription of ₹14,170-crore for ₹66-crore IPO

Diversified companies

It is heartening to see companies from diversified segments such as healthcare, infra, packaging, visual studio, jewellery, spices, power, IT, etc tap the SME market. Interestingly, most of these companies saw an overwhelming response from institutional and small investors. Of late, in most cases, the retail investors’ interest is multifold than institutional (QIBs) or HNIs (Non-Institution investors).

Basilic Fly Studio saw retail portion being subscribed by 415 times, against QIBs bid 116 times; however, NIIs portion witnessed even better at nearly 550 times. CPS Shapers, whose share got listed at ₹472.50 against IPO price of ₹254, witnessed retail portion getting 301 times subscribed, outshining 198 times recorded by QIBs.

Strong performance

Investors’ faith has not been belied so far. At least six companies, since July, have more than doubled on listing day itself. Of the 13 listed in H2-FY23, except Sahaj Fashions and Crop Life Sciences, other are trading in positive territory with handsome returns.

In fact, only 20 stocks out of over 108 companies that hit SME platforms in 2023 posted negative returns.
NSE Emerge and BSE-SME were launched in 2012 and helped several SME companies raise funds through these platforms. An issuer company whose post-issue paid-up capital is not more than ₹25 crore, having positive net worth and net tangible assets of ₹1.5 crore is eligible to list its securities on the SME platform.

The market lot has been fixed in such a way that it requires a minimum of ₹1 lakh investment. For a company that fixes issue price at or below than ₹14, the market lot is 10,000, and for price above ₹1,000, the lot size is 100. May be the time has come to tweak the lot size higher if not double to keep unnecessary euphoria under check. As the lot will be same post listing, non-serious investors, who aim only for listing gains, may turn cautious.

Analysts’ report

It is now voluntary for companies to get research analysts’ report. However, in recent times, none appeared to have voluntarily approached analysts for review of their companies. Exchanges should nudge more companies to go for research reports, so that investors can make an informed decision.

Retail investors should also be cautious with regard to SME stocks as they may get stuck with the stocks due to lack of liquidity after initial euphoria. Besides, companies may take time to scale up their operations for which investors need patience. If corporates, on their part, tone up governance issues, especially on disclosures, it will benefit everyone in the value chain.