Soon you will have a barometer index for the country’s small and medium enterprises (SME) segment. The Bombay Stock Exchange (BSE) is set to launch an SME index, the first of its kind in India.
Currently, BSE has 11 SME companies listed on its platform, while the National Stock Exchange (NSE) has one. BSE’s SME index will have features similar to the BSE IPO index, said an expert close to the development.
BSE currently has 28 indices, which include six broad-based indices, two thematic, four investment strategy, 13 sectoral and three volatility indices. Out of these, BSE Sensex and BSE 100 are available for trading in the derivatives segment.
|GOOD SHOW |
Most of the SME IPOs are currently in the money
|SMEs listed on BSE ||Issue |
|Anshus Clothing ||27 ||27.50 ||1.90 |
|BCB Finance ||25 ||25.00 ||0.00 |
|Bronze Infra ||15 ||15.65 ||4.30 |
|Comfort Commotrade ||10 ||16.40 ||64.00 |
|Jointeca Education ||15 ||15.35 ||2.30 |
|Jupiter Infomedia ||20 ||24.25 ||21.30 |
|Max Alert ||20 ||62.15 ||210.80 |
|Monarch Health ||40 ||83.50 ||108.80 |
|RCL Retail ||10 ||9.55 ||-4.50 |
|Sangam Advisors ||22 ||22.10 ||0.50 |
|SRG Housing ||20 ||21.75 ||8.80 |
|Source: BSE SME |
The BSE SME index will track the value of companies for two years subsequent to successful completion of their initial public offerings (IPOs). The maximum weight any company will command will be capped at 10-20 per cent and the constituent weightage will be reviewed at the time of inclusion/exclusion of a scrip and on monthly rebalancing, said a source.
Both NSE and BSE are banking on the fact that many venture capitalists and foreign funds have shown interest in Indian SMEs and hence, they will be keen to invest in these SMEs through the exchange.
From the stock exchange perspective, SME exchange seems to be a long-term proposition. It will take around five years for an exchange to break even and there is a belief among BSE officials that an SME index will go a long way in attracting fund managers on their platform.
Interestingly, most SME companies have delivered positive returns for investors. Out of the 11 SME issues on the BSE, 10 are currently trading above their issue prices, while one is about five per cent below its IPO price. Market making for SME companies is compulsory for the first three years post-listed. Two companies — Max Alert and Monarch Health —have risen three times and two times, respectively.
The SME platform, launched by both BSE and NSE, is a third attempt in the history of Indian capital market to provide a window to SME companies to raise equity capital. The previous two attempts -- first with Over The Counter Exchange of India launched in 1990 and the second with the ‘BSE Indonext’ launched in 2007 — hadn't succeeded as investors had stayed away from investing in SME companies.
Typically, SME companies in the country have had to rely on debt financing from banks or NBFCs, as equity capital was largely inaccessible to them. This time, the government, Sebi and the stock exchanges have put in a lot of efforts to make the third attempt a success.
However, issues like high cost of capital raising, limited awareness and regulatory requirements like market making and disclosures are proving to be hurdles for a numbers of SMEs to come forward to raise equity capital.