By Suresh Mansharamani
World MSME Day 27th June 2023: Today, when we talk about the transformation of our country and the high regard for our growing economy, we cannot overlook the contributions of the SMEs of India revolutionizing the economic landscape of our nation. Indeed, SMEs are redefining the picture of Indian Entrepreneurship. As our Prime Minister Narendra Modi states, “Small businesses are the heartbeat of a nation’s economy, driving innovation, creating jobs, and fostering inclusive growth.”
SMEs are demonstrating to be compelling engines of economic growth and innovation in the vivacious environment of India’s financial markets. And, in this scenario, retrieving the capital markets through Initial Public Offerings (IPOs) has become indispensable as these businesses work to accomplish new heights. A plethora of variables that draw on investor demand, regulatory reforms, and the need for expansion have recently increased the number of SME listings on Indian exchanges.
However, there is still a long way to go and expand the scope for these businesses to thrive in order to significantly work for the progress of SME IPOs in India. Hence, it is essential to develop the ecosystem and put in place the required strategic measures for SMEs to grow and create a legacy that will shape the destiny of India.
Investor Demand: Seizing Opportunities in Untapped Markets
Investors are increasingly looking for exposure to businesses with substantial growth potential as well as diversification. Investors have the chance to take part in these companies’ expansion through SME listings. Investors are looking for alternatives outside of typical blue-chip stocks due to the attractiveness of sharing in the success stories of prospective SMEs. SMEs captivate investors looking for the next big thing by bringing new viewpoints, revolutionary innovations, and entrepreneurial zeal to the market.
Also read: SME IPOs jumped 84% in 2022 from previous year; raised nearly Rs 2,000 cr
Now, let us take the example of a digital startup that transformed the mobile payment sector. By going public through an IPO, it not only attracted investors wanting to ride the wave of the digital revolution but also acquired access to key financing. Early backers were rewarded by the following increase in share value, which further stoked interest in SME IPOs.
Regulatory Reforms: Nurturing a Supportive Environment
Nirmala Sitharaman, the Minister of Finance had earlier stated that the government recognize the vital role played by SMEs in innovation, job creation, and poverty alleviation and the policies aim to empower SMEs, enhance their competitiveness, and support their integration into global value chains.
The Indian government and regulatory organizations have always acknowledged the potential of SMEs and have been aggressively developing reforms to facilitate their listing on exchanges. By lowering listing criteria, streamlining disclosure standards, and introducing specific platforms for SMEs alone, these measures seek to foster an atmosphere that promotes SMEs to go public.
The SME Exchange division of the Bombay Stock Exchange (BSE) in India is a significant example where the SME Exchange provides a streamlined listing process and reduced financial thresholds, making it easier for smaller companies to access capital markets. Since its inception, the SME Exchange has witnessed a boom in IPOs, giving aspirant Indian SMEs a platform and illuminating the effect of regulatory assistance on market growth.
Access to Capital: Empowering Growth and Expansion
It is true that SMEs in India often face significant challenges in securing the necessary capital to fuel their expansion plans. IPOs offer these businesses a game-changing prospect to obtain money from a larger group of investors and realize their full potential for growth. The influx of funds enables SMEs to scale their operations, expand into new markets, invest in research and development, and buy cutting-edge technologies.
This concept can be well illustrated by the example of an Indian technology SME with a focus on renewable energy options. By effectively going public, it was able to access the funding necessary for expanding its operations as well as attract strategic alliances and collaborations with well-known companies in the renewable energy industry. The SME was catapulted by this access to capital to the forefront of India’s clean energy revolution, increasing its growth trajectory and aiding in the achievement of the nation’s sustainable development goals.
Visibility and Branding: Stepping into the Spotlight
The increased visibility and branding opportunities offered by SME IPOs in India are among its many underappreciated benefits. Indian SMEs have a platform to promote their goods, services, and expansion prospects to a larger market thanks to their listing on an exchange. The increased visibility can help SMEs grow by luring in clients, business partners, and even possible buyers.
Now, we can take the example of an Indian healthcare startup that went public. Through its IPO, it attracted a lot of media interest and investor focus, showcasing its cutting-edge healthcare solutions and dedication to enhancing access to high-quality healthcare. The company’s brand perception reached previously unheard-of heights as a result of the IPO, which served as a groundbreaking catalyst and unlocked an array of opportunities. Famous hospitals and healthcare organizations queued up enthusiastically to work with this creative force, ready to set out on a joint adventure to transform healthcare and usher in a new era of widespread well-being.
According to recent reports, the number of SME IPOs has witnessed a substantial rise in the past decade, reflecting the increasing confidence of entrepreneurs and investors alike. In 2022 alone, SME IPOs accounted for over 40 per cent of the total IPOs in India, underscoring their significance in the capital market landscape.
Around 109 SME companies went public in 2022, raising a total of about Rs 1,875 crore through IPOs. In contrast, 59 SME companies were listed in 2021, raising a total of Rs 746 crore. This substantial increase in both the number of SME IPOs and the funds raised reflects the growing confidence in SMEs as viable investment opportunities.
The performance of numerous recently listed small businesses in 2023 has been excellent, notwithstanding the difficulties the Indian Stock Market has encountered on a worldwide basis. 49 offerings by SME companies have raised Rs 930 crore so far in 2023, which is almost nine times the market value of the five mainboard issuances. Approximately Rs 5,824 crore is raised by these five main board IPOs, as per data from Prime Database. According to the recent news, SME IPOs 2023 so far witnessed 33 of 49 stocks trading above the offer price. This positive performance further underscores the potential and market demand for SME IPOs.
It has to be accepted unitedly that continued support from the government and regulatory authorities is necessary to foster the expansion of SME IPOs in India. SME IPOs can expand further if there is a supportive environment that meets the unique demands and problems of SMEs, as well as investor confidence and the right legal framework. India can unlock the full potential of SMEs, drive economic growth, and build a thriving ecosystem of success stories by supporting programs that encourage financial inclusion, mentorship, and industry-academia partnerships.
Suresh Mansharamani is the founder of the business network Tajurba. Views expressed are the author’s own.