The migration of small-and-medium enterprises (SME) stocks to mainframe has plunged by over 80% in the calendar year 2024. So far, just 6 SME stocks have migrated to mainboard. In comparison, 32 stocks had entered the mainframe in 2023 and 37 stocks in 2022 during the same period, according to data from PRIME database.
Overall, 38 stocks migrated to mainframe in 2023 and 60 in 2022. The significant drop comes in the backdrop of new guidelines that were introduced by exchanges, which experts say have made things a little more difficult.
The companies listed on SME platforms – NSE Emerge and BSE SME – can migrate to the mainboard if they meet certain criteria.
The new guidelines include paid-up capital of over Rs 10 crore post issue, minimum market capitalisation of Rs 25 crore, net worth of at least Rs 15 crore in the previous 2 financial years, minimum period of 3 years listed on SME platform, etc.
These came into effect on January 1. Earlier, the companies were only required to complete 3 years on SME platforms, and they would be eligible to migrate to mainboard if they wished for it, according to experts. However, like in the past, shifting to mainframe is a voluntary decision instead of being a rule.
“This (change in guidelines) is the single biggest factor behind the drop in migration. But corporate governance has been a challenge when it comes to SMEs coming to mainboard because there have been complaints of lack of governance in some firms,” said Tarun Singh, managing director of Highbrow Securities.
Experts said while the tougher migration norms are necessary, exchanges also need to ensure stricter norms for companies getting listed on the SME platforms.
“It is better to have stricter norms for stocks entering the SME market rather than stock migrating from SME to mainboard,” said Deepak Jasani, head of retail research at HDFC Securities.
A platform for small-and-medium enterprises, exchanges launched dedicated platforms for SMEs in 2012. While the first few years were lull, the number of issues crossed 100 for the first time in 2017. The total fundraising through SME platforms also surpassed Rs 1,500 crore for the time this year.
However, things again went south in 2019, when the number of issues dropped sharply. Even in 2020 and 2021 – the initial years of COVID pandemic – the number of SME issues remained feeble.
Nevertheless, low interest rates again fuelled the fund flow into the SME platforms in 2022. Last year became a record-shattering year for the platform as 182 public issues raised Rs 4,686 crore.
Over 1,000 companies have listed on the SME platforms so far since 2012, and around 320 of these have migrated to the mainboard, as per the data from NSE and BSE.
Of the 182 companies that got listed in 2023, Singh expects 10% to make it to mainboard.
“A few of these companies have also done rights issues or FPOs post their initial share sale. Such companies will definitely try to comply with the criteria to migrate to mainboard,” Singh said.