Nearly a year after the country’s two premier bourses, BSE and NSE, started operations of their respective SME platform, the firms that have got themselves listed on the platform are still grappling with liquidity issues.
In the last year or so, as many as 18 companies have listed on the BSE SME exchange platform. Of these, the average one-month turnover of a dozen firms is below R10 lakh. Of the five firms that have seen a turnover of more than R20 lakh, four have been listed less than a month back. The highest turnover of R1.26 crore has been recorded by HPC Biosciences, which got listed earlier this month.
The one-month average tunover of Thejo Engineering and Veto Switchgears & Cables, which are the only two companies that got listed on the NSE Emerge platform, have also been low ? at R1.4 lakh and R15.3 lakh, respectively.
Interestingly, the one-month average turnover of nine of the 11 companies that have completed six months of listing on BSE is less than their six-month average turnover. This means that the turnover of these firms has declined over the past six months.
Merchant bankers blame the low liquidity on the mandatory requirement to trade in lots, with a minimum lot size of R1 lakh. ?The lot size is a major hurdle for generating adequate liquidity,? said Rajendra Kanoongo, president, merchant banking division, Ashika Capital. ?The market regulator is looking
into the issue and hopefully the size will be halved to
R50,000.?
Liquidity is not the only issue SMEs are grappling with. According to market players, there is a distinct lack of interest on the part of institutional investors. ?Institutional investors typically look to invest at least R10-15 crore in a single issue and they are averse to investing in much smaller amounts,? said Saurabh Agarwal, director, Kennis Group, an integrated business solutions provider to firms in the SME segment. Just three institutional investors, including SIDBI Venture Capital, have invested in the SME firms that have got listed in the past one year.
What’s more, merchant bankers have been hesitant to handle SME issues. The chief reason for this is that bankers are required to fully underwrite the issue and pay the entire money before the scrip is actually listed. Bankers also have to ensure market making in the issue for three years, a requirement that many bankers frown upon. ?We are opposing this requirement. Why is market making needed for three years? Six months or a year should be more than enough,? said Kanoongo.
The low liquidity and indifference of institutional investors, though, has not quite deterred SMEs from making a beeline to get listed. According to industry observers, four to five offer documents are getting filed every month on the SME platform of BSE.
Market players believe activity in the SME segment can only pick up if entities like venture funds, private equity (PE) players and even insurance companies or mutual funds show interest. ?Venture funds and Angel investors still don’t seem to be completely convinced about the SME model and are hesitant to come on board. The activity in this segment will grow in leaps and bounds once they start investing,? said Agarwal.
