The year 2012 has been forgettable for the primary market. However, in the small companies platform of the Bombay Stock Exchange (BSE), the BSE SME Exchange, is beginning to see some action.
The number of small and medium enterprises (SMEs) listed is likely to hit double digits in the next few months, according to intermediaries. Though the capital raised is much lower, the number of initial public offerings (IPOs) is already comparable to the action on the main board. Only seven IPOs have hit the main exchanges so far in 2012. Even of these seven, two had to withdraw their issues due to poor investor response in May. Of the rest, four are trading below their IPO prices.
“Already two companies are listed and five more are in the pipeline, with three of them having already filed their draft red herring prospectuses with the exchange,” said an exchange official. The profile of those coming for listing has also improved, with more companies from out of the financial world showing interest.
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When the BSE SME debuted with the public issue of BCB Finance in February, there were murmurs about the company becoming a member of the exchange itself. However, now the companies in the pipeline include an alert systems maker, a health care player, an infomedia entity and a debt-syndication firm. Separately, NSE Emerge, the SME platform floated by the National Stock Exchange, is also working on getting SMEs raise capital.
Arun Kejriwal, director, Kejriwal Research and Investment Services, said: “By the end of next month, we are likely to have five more IPOs. Only when you have at least seven to 10 firms listed, one will be able to analyse and judge their quality. At the outset, there is a lot to be desired in terms of quality.”
In addition to interest from potential listed firms, some of the better-known brokerages like Karvy, Prabhudas Lilladher and Asit C Mehta have entered the SME market, registering themselves as market makers. According to the BSE SME website, 28 entities have registered as market makers till date.
Market makers play a pivotal role in bringing a company to listing on the SME platform.
Unlike the main exchange, each stock in the SME platform is mandatorily required to have a market maker. Recent changes in tax rules, which make exits by private equity and venture capital firms through the exchange platform more tax-efficient, have also spurred interest in the SME platform, officials said.