Launched with much fanfare, and support from the ministry of micro, small and medium enterprises (MSME), BSEs SME Exchange seems to have failed to enthuse firms and investors alike. While very few companies have been listed on the exchange that started in March 2012, both foreign institutional investors and domestic investors have turned a blind eye to these SMEs.
The MSME ministry, disappointed with the lukewarm response, is now looking for ways to keep the exchange attractive for SMEs to raise equity. Minority stakes have been picked up by domestic institutional investors in the SMEs listed on the exchange. Foreign institutional investors (FIIs) have stayed away so far. The exchange has not fared according to our expectations, said a senior official in the ministry.
In three out of five companies listed on the SME exchangeMonarch Health Services, Max Alert System, and Sangam Advisorsdomestic investors have picked up a minority stake of 5-6%. There are several regulatory challenges, and micro-cap companies are finding it difficult to get listed. Though Sebi has done away with the clause that an enterprise should be profitable for three years prior to listing, as mandated for the main board, more such relaxations have to be made, the official said.
The SME platform was expected to attract FIIs, private equity funds, venture capitalists, high-networth individuals and banks to give a push to the MSME sector. Banks should also be asked to invest a part of their total capital market exposure in the capital issue, he added.
The BSE SME exchange hopes to list ten companies in the current financial year and around 100 companies on its trading platform in the next one year. However, analysts and the ministry feel that the exchange may not meet these goals.
SME exchange per se is a very good idea as it becomes easy for small enterprises to tap the capital market. The cost associated with raising capital would be comparatively much less. An exchange is successful when retail investors are allowed to invest and banking companies also participate. If banks were to participate in this market, then it will start growing and it will create more trust among institutional investors. Sebi has to give more relaxations, said Ashvin Parekh, partner-national industry leader for global financial services, Ernst & Young Pvt Ltd.
There are around 26 million SMEs in India and according to the BSE SME Exchange estimates, around a million can aspire to be on the exchange in a couple of years.