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Credit and Finance for MSMEs: The last one and a half years have been tough for the small and medium-sized businesses due to the pandemic and initial public offerings (IPOs) by SMEs have taken a hit. In the financial year 2021, SME IPOs were at an all-time low with only 28 companies that went public. This represents a decrease of 38 per cent over the previous fiscal, according to data by Prime Database.
In fact, these 28 firms together raised Rs 244 crore, 44 per cent less than the Rs 435 crore raised by 45 SMEs in FY2020.
The number of listings is comparable to that of FY2013, the early years when SME listing platforms were instituted. NSE Emerge began in September 2012 and BSE SME was launched in March 2012. The fiscal year 2013 saw 24 SME listings with an average issue amount being Rs 8.6 crore (similar to the year 2020-2021).
“The pandemic has affected the earnings of the smaller companies in the worst possible manner and this is seen in the listings,” Pranav Haldea, Managing Director at PRIME Database Group told Financial Express Online.
The largest SME issuances have been in three main sectors: IT, textiles and financial services. “This is a no brainer for IT and financial services firms to take advantage of the primary market because new-age technology firms have transparent processes, making it easier for them to meet disclosure requirements than firms in traditional sectors where operations are fairly opaque,” said Sunil Kumar Sinha, Principal Economist and Director, Public Finance, India Ratings & Research.
He added that while the issuances are also substantial in traditional sectors such as textiles and trading, the share of these companies as a percent of the enormous sector they are part of is minuscule.
In general, SME IPOs have been losing sheen post the DHFL crisis in 2018 after gaining traction between 2016 and 2018. In fact, in those years the mid-cap and small-cap indices had started outperforming the broader markets. “There was also a consequent sharp surge in secondary markets which led to easy money raised in the primary markets. Almost sixty per cent of the money raised in SME IPO was in the years 2018 and 2019,” said Vikas Jain, Senior Research Analyst at Reliance Securities.
“When markets start recovering after next two quarters, the earnings from the broader market is likely to be upwards of 20 per cent and that is when more SMEs are likely to raise money,” he said.
However, poor returns and follow-up to the main-board continue to remain a concern for the SME-listed stocks. Stock market commentator Dilip Davda said that there is not much information available on SMEs in media and very few institutional investors deal in them, making it difficult for their shares to be traded in the secondary market. “Brokers entertain only selling of SME lot holding but do not encourage buying,” he said.
Also, while there are fewer regulatory requirements for SMEs to get listed, a lot more can be done. “SEBI guidelines of having a minimum application amount of Rs 1 lakh impedes many individual investors from holding SME shares,” said Davda. Furthermore, investors in SME firms are permitted to buy or sell the entire minimum lot only whereas for main-board even one share can be bought or sold.
Overall, as per PRIME Database, there are 563 SME companies that have got listed till date. As per the data by National Sample Survey Office, during the period 2015-16, there were 3.31 lakh small and 5,000 medium sector enterprises in the country. “There is a need to educate SMEs about taking advantage of the capital market and how it helps in raising cost-effective capital,” said Sinha.