More than a third of the 427 small and medium enterprises (SMEs) listed on the exchange platform since 2012 are trading in the red. As many as 76 of these companies have shed more than 75 per cent of their value over their offer price, the data from PRIME Database shows.
The BSE and the NSE had launched separate SME platforms in March 2012, after the Securities and Exchange Board of India (Sebi) came out with easier listing and disclosure guidelines to help small companies tap into the capital market. This is the first time that the segment finds itself in the throes of a bear cycle.
Among the 247 actively traded scrips, 17 have shed more than 50 per cent this calendar year. About 40 per cent have slid more than the Sensex, which is down 23 per cent year-to-date. The lack of buyers has compounded the problems for these stocks, said experts.
About 19 per cent, or 47 stocks, however, have gained during this period despite the market turmoil. Powerful Technologies, HKG, and CMM Infraprojects are the top performers, with gains of 138 per cent, 108 per cent, and 91 per cent, respectively. Despite the possibility of high returns, experts said there was a greater probability of losing one’s entire capital in SME stocks.
Analysing these firms can be a challenge as they are not tracked by analysts and there is not much information in the public domain. This means investors are left to themselves when it comes to assessing the fundamentals and gauging the credibility of promoters.
“The current turmoil is likely to have a significant impact on the share price of SMEs and upcoming issuances,” said Pranav Haldea, managing director, PRIME Database. “The liquidity in these counters is not as strong as you would find on the mainboard. These companies are also less researched and have a lower number of investors which will compound the problem.”
The SME segment has been grappling with issues, such as lack of liquidity and lacklustre institutional participation. According to experts, the need is to bring in priority investing from big institutional players and tweak the lot size to improve liquidity.
Besides improved transparency, an IPO route for SMEs reduces their dependence on debt financing and helps them maintain their debt-equity ratio efficiently, said experts. Listed SMEs with good ratings are able to get loans at lower interest rates than the market.