Exchanges gear up to launch their SME platforms, but bankers find the norms tough
Small and medium enterprises (SMEs) in India will soon get a new avenue to raise equity capital from investors and list their shares on premier stock exchanges.
India’s two leading stock exchanges — the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) — are gearing up to launch a separate trading platform for SMEs. The two have already received “in-principle” approval from the Securities and Exchange Board of India (Sebi) to set-up the SME exchange.
BSE hopes to make its SME platform operational by September. “We intend to create awareness about the platform among SMEs and various market intermediaries, before going live,” a BSE spokesperson said. “SMEs are craving for better funding sources. The BSE SME exchange is going to bring the entire pool of investors on a single platform and hence it will be easier for SMEs to raise capital through this platform in a cost effective manner,” he added.
BSE has already briefed merchant bankers and member-brokers about its SME platform and taken their feedback. The exchange has also been conducting seminars to educate SMEs on the benefits of listing and the preparations required for listing. “We have already conducted seminars in Maharashtra, Gujarat and Andhra Pradesh and have lined up a large number of seminars to cover other parts of the country,” the BSE spokesperson said.
To create awareness among SMEs about the benefits of listing on its platform, BSE is tying up with channel partners that include various institutes and associations engaged in the development of SMEs.
BSE’s cross-town rival, NSE, also hopes to start a SME platform soon. “At the macro level, the Indian market has all the ingredients of a successful junior market, like a large number of innovative and high-growth enterprises looking for capital and risk investors looking for investment opportunities,” said a spokesperson for NSE. “The need for capital for growth is a key requirement of a large number of growing SMEs in different stages of business. The SME platform will become a new source of capital for smaller companies,” she said.
NSE is working closely with leading SME institutions that have experience and understanding of SMEs, and also with market participants, for its proposed SME platform. To improve liquidity in stocks listed on its SME exchange, NSE may introduce a call auction window at regular intervals during the trading session, according to a person familiar with the exchange’s plans.
A call auction refers to a mechanism where buy and sell orders on selected stocks are collected over a fixed period of time and then processed in an auction. The price at which the highest number of orders is executed is chosen. In other words, buy/sell orders are not executed immediately.
Experts believe that a dedicated exchange will help SMEs raise capital for growth. “There is a tremendous potential for this market. Norms for the SME exchange have to be reasonable, so that small companies which are not able to get money from banks can raise capital on these exchanges,” said M R Mayya, former executive director of the BSE.
Investment bankers dealing with small companies also underline the need for a separate trading platform for SMEs. “Small companies which are not able to list on the main board due to capital constraints can list on SME exchange and raise funds,” said Ketan Modi, assistant vice president at Ahmedabad-based Vivro Financial Services, which provides investment banking services to small and medium-sized companies. “Globally too, for example AIM in London, there are separate platforms for smaller companies,” he added.
However, investment bankers are finding norms like market making of securities for a minimum of three years after listing and 100 per cent underwriting of the issue tough. “We are not comfortable with these rules. We don’t have that much capital,” said an investment banker, who has handled issues of several small-cap companies.
The minimum lot size of Rs 1 lakh for trading of SME stocks on the stock exchanges has also not gone down well with a section of market participants, who believe that this move may hamper liquidity in these counters, as small investors won’t be able to participate.
