Liquidity booster for small-cap companies

CAPITAL FOR SMES

Indonext, the proposed national market for small and medium cap companies, will get a booster dose with finance minister P Chidambaram announcing the formation of an alternative trading platform for small and medium enterprises (SMEs) to raise equity and debt from the capital market.

At present, a number of small and medium cap companies find it very difficult to raise capital from the market on account of the stiff networth criterion been set.

The finance minister's proposal is expected to benefit a number of software, bio-technology, pharma and engineering companies as these companies either have to approach venture capital or financial institutions for funding.

The Bombay Stock Exchange (BSE) and Federation of Indian Stock Exchanges (FISE), which represents 20 Stock Exchanges in the country, had proposed in late November 2003 the formation of a national market termed Indonext for small and medium cap companies.

Currently, the shares of small and medium cap companies listed on various regional stock exchanges (RSEs) do not have liquidity, and investors in these companies are not able to find an exit route. These companies are also not able to raise fresh capital from the markets.

In terms of the new proposal, shares of companies with paid up capital up to Rs 20 crore listed and traded on BSE and various participating RSEs would be traded in a national market through single order book on the BOLT system of BSE. Members of BSE and RSE both would be able to participate in trading in this market, the operations of which would be managed by BSE.

According to a senior BSE official, "This major initiative would generate liquidity in shares of small and medium cap companies. This would help the investors, companies and the network of about 7000 members of RSEs, who cater to the investors in the far-flung areas of the country, contributing to the development of the capital markets."