ipo news: Why SME IPOs are emerging as a leading fundraising platform for promoters

As the world is witnessing a slow shift towards the stability of the global economy in the post-covid era, the Indian economy has reached a sweet spot with BSE SME IPO Index delivering the highest returns ever in 2022. Several fundraising options are emerging in India and local companies are preparing to raise capital from alternative sources to meet the needs financial requirements of the country.

For a developing country like India, Small and Medium Enterprises (SMEs) are the wheel that turns the economy around, and SMEs contribute up to a third of India’s GDP. SMEs have played an essential role in the socioeconomic development of India and in globally developed countries like Germany. In fact, SMEs generate 54.4% of total value added in Germany and 63.7% of total employment in the German non-financial business economy.

In India, SMEs form an important part of the Indian economy and contribute to GDP, industrial growth, employment and exports. Today, people are investing in these companies, which not only helps them grow their businesses, but also helps create more job opportunities. The demand for IPOs by SME companies is increasing due to reasonable valuation, excellent profitability and well-marked growth trajectory.

However, the sector is facing challenges, including the need for adequate and timely credit availability and limited access to equity capital. SMEs mainly rely on bank financing to meet their working capital requirements, but equity capital must be brought in by the business promoters. They depend on listing of their companies on exchanges to generate equity. Equity is also helping to reduce the debt burden resulting in lower operating costs and a healthier balance sheet. This segment also faces challenges for regional and national commercial bankers as it is still for small town business to identify a suitable commercial banker. a challenge for them.

Reflection, growth story of self-liberating India, BSE SME IPO the index achieves rock star status in 2022. On the other hand, capital markets are almost stuck at the level where it started its journey in early 2022 with Sensex at 57,897 and closed near 60,910 with annual rate of return is 6% at the end of the year. Nearly all of 2022 has seen quite a bit of volatility in profit generation, making it difficult for investors to choose the best option available. By contrast, an indicator that represents India’s growth story emerges as a clear winner in terms of profitability. The BSE SME IPO Index delivers an annualized return of nearly 67% in 2022, beating all other major indexes. It has a market capitalization of Rs 63,898 crore and 410 companies are listed in this segment.

It is the dream of all small and medium companies that are raising money from the market and participating in the overall economic growth of the country. Following the BSE SME IPO index is the BSE strength index but it comes in second with an annual return of 25%. Third is the BSE PSU index fund and bank indexes with a return of 22%.

The BSE IPO index has struggled to turn a profit, while the SME IPO index has been surprisingly profitable. It clearly shows the shift of investors to the emerging story of the growth boom of SME in India. Local companies and NRI found this segment extremely attractive and bet on it. This segment is also a must-see for investors in 2023.

(Lallit Tripathi is
Founder & CEO at Vedant Asset Ltd. Personal opinions.)


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