Editorials

by Rajen Kumar

No Escaping Social Media

Running a magazine concentrating on issues of small and medium enterprises and managing with limited resources is a like living life on the edge. In this rush of meeting deadlines,...

Special Reports

Apr 2012

EMRC, Brussels Associates with SME WORLD as its New Media Partner

EMRC has promoted business partnerships with the developing world and has organised dozens of business forums in key decision-making cities, such as Amsterdam, Rome,...

SME Exchange

Level Playing Field for Small Entrepreneurship

Sanjeev Gupta
Sep 2011

The Dream of creation of a specialized SME Exchange Platform for providing much needed impetus to SME Entrepreneurs for their access to risk capital finally appearing to become reality. With Bombay Stock Exchange (BSE) & National Stock Exchange(NSE) becoming the first exchanges being granted an in-principle approval for offering a separate SME Trading Platform post SEBI's announcement of Regulatory Framework in May, 2010, the countdown of listing of first SME company is intensifying. With positive hope and increasing expectations about SME Exchange on one side versus emanating apprehensions about their successful operation on the other side – the debate is as HOT as it gets! The growth chances of a successful business enterprise & creation of faster value to its stakeholders lies in its ability to quickly transfer its risk capital from one hand to another through participation of large investors in it's growth prospects, on an ongoing basis.

The far reaching capabilities of Indian entrepreneurs has proved that given the availability of risk capital, their business can really contribute to great unlocking of investors wealth simultaneously augmenting the country's capability in attaining large volume of overseas investments. The big bang mover entrepreneurship behind the successful progression of small business set up has led to emergence of global business house(s) like Reliance, Infosys, Bharti-Airtel, Suzlon, Educomp, etc.. These are some of the numerous examples of the immense opportunities present in the Indian “SME Sector” & it's potential. The unique characteristics of scalability of Indian business on account of domestic consumption story has already prompted many Global Institutional Investors & Banks setting up SME Focused Funds in India for catering to Debt and Equity requirements of SME Sector. Even now SME set-up assumes a larger significance with their contribution in GDP to around 8%, contribution to manufactured output by over 45%, export contribution to around 40% and providing employment opportunities to around 60 million people.

However, one of the major issue(s) restricting the flow of money to the SME sector has been difficulties in identification of deserving companies in a cluttered mix of around 26 million business enterprises in India. Now, it is expected that the current economic growth momentum will prompt around 1 million SME to explore their ways on IPO Market and opportunities for listing. It is well known that nearly 76% of firms listed on stock exchanges have a market cap of less than Rs. 500Crores and account for just less than 5-7 % of trading. Hence, they offer shallow liquidity and in majority of the cases are practically illiquid. Stiff SEBI regulations for same level of compliance by SME as bigger companies, non-availability of adequate market research and information about smaller companies & cost unattractiveness of smaller sized IPO Offerings are some of the main reason of subdued trading in smaller companies on the main board exchange(s).

The Global Experiences have shown the spectacular performance of specialized Stock Exchange(s). NASDAQ is one of the classical examples in this regard – as it facilitated tremendous flow of money towards IT & Technology companies in US and Globally. Further, more, the Alternative Investment Market (AIM) in United Kingdom, KOSDAQ in the republic of Korea and TSX-Venture Exchange (TSX-V) in Canada clearly describes the importance of specialized SME exchange creating a virtuous cycle from Private Equity to Public Listing. Collectively, these three new markets list more than 4000 firms and attract more than 450 listings a year. AIM has helped firms raising US$80 billion since its inception in 1995, and KOSDAX around US$26 billion since its start in 1996. The main reason behind the success of these Stock Exchange(s) is the formulation of a different trading and listing norms than the main board in a way that it allows less procedural, cost effective, volume driven trading platform - also encouraging the participation of small investors through effective dissemination of relevant knowledge and research.

To this point, SEBI Regulations are welcome move as this seeks to address directly the core issues of ensuring greater participation of companies, investors and market intermediaries. Specifically, the chances of elimination of lengthy procedural formalities by allowing Stock Exchange(s) approval in case of smaller IPO, deregulation through greater responsibilities of Merchant Banker(s) of ensuring 100% underwriting in small IPOs including 15% from their own account & compulsory market making for the next three years appears some of the well thought out measures which might encompass nurturing of some of the smaller companies into bigger global corporate(s).The other expected benefits encouraging wider participation of companies are chances of substantial lowering of market participants fees on account of larger volume dealings and lesser listing & compliance fees for allowing six months declaration of results rather than quarterly in case of companies listing on normal trading board. This may provide adequate and level playing field for small entrepreneurship having capabilities to undertake their growth journey in an uninterrupted & effective manner.

Sanjeev Gupta is Managing Director, NEXGEN Financial Solutions Pvt. Ltd. & Co-Chairman – Banking & Financial Services Committee, PHD Chamber of Commerce & Industry & Member-Working Group-for MSME Growth -for 12th 5Yr Plan (2012-17)-Planning Commission.

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