What is a Small and Medium Enterprises (SME) Exchange?
A SME or Small and Medium Enterprises Exchange is a stock exchange dedicated specifically for trading the shares or securities of SMEs who otherwise do not meet all the norms of getting listed on the Main Board.
There are two SME Exchanges in India i.e.
- BSE SME platform (BSE): 236 companies
- EMERGE Platform (NSE): 125 companies
Norms of getting listed on the SME Exchange
- The post-issue paid up capital of the firm should not be more than Rs. 25 crs
- Companies having post issue paid up capital of over 25 crs have to compulsorily list on the Main board of BSE or NSE
- Net Tangible assets of the company must be atleast Rs. 1.5 cr
- Company should have positive networth
- The company or the partnership/ proprietorship/ LLP Firm or the firm which has been converted into the company should have combined track record of at least 3 years OR
- In case the company has not completed its operation for three years then the company /partnership/ proprietorship/ LLP should have been funded by Banks or financial institutions or Central or state government or the group company should be listed for at least two years either on the main board or SME board of the Exchange.
- The company or the firm or the firm which has been converted into the company should have combined positive cash accruals (earnings before depreciation and tax) in any of the year out of last three years and its net worth should be positive
- The firms with paid up capital ranging between INR 10 Crore to INR 25 Crore have the option to migrate from SME Exchange to the Main Board or vice-versa
Major Benefits of listing
- The SME Exchange is a new exciting platform for small and medium sized companies with potential for high growth, thus providing an efficient route to listing for prospective SME issuers.
- Listing in SME Exchange will provide an opportunity to the corporates to raise capital to fund new projects or undertake expansions or diversification and also for acquisitions.
- This mode of Capital raising through infusion of equity can assist the firms to raise borrowed funds at an efficient & effective rate.
- Equity financing reduces the debt burden on the firm leading to lower financing expenses and healthier balance sheets.
- Listing also gives an opportunity to exit for private equity investors & liquidity to the ESOP – holding employees of the firm.
- Listing mandates good Corporate Governance within the management which results in sustainability of the firm.
Trading
Trading on the SME exchanges is similar to normal buy and sell protocol as in case of Main Board with no requirements to extra protocols. However, with some exceptions to the rule.
- SME exchange has a larger lot size i.e., the least number of shares investor can buy or sell in each transaction. One cannot trade amounts lower than Rs 1,00,000/-.
- The lot size depends on the price of the stocks. On the NSE Emerge, if the stock price is less than Rs 14, then the lot size will be at 10,000 and if the stock price is between Rs 120 and Rs 150, then the lot size falls down to 1,000.
Number of IPOs on the SME exchange in the last 3 years
| Year | Number of IPOs | Amount Raised (Rs Cr) |
|---|---|---|
| 2022 | 32 | 603 |
| 2021 | 59 | 787 |
| 2020 | 27 | 168 |
| 2019 | 54 | 657 |
BSE SME Exchange
As on 8 July 2022 the total market cap of all the companies listed on the BSE SME exchange is approx. 11,000 crs
| No. of Companies Listed on SME till Date | 380 |
|---|---|
| Mkt Cap of all Companies. Listed on SME till Date (Rs.Cr.) | 51,586.28 |
| Total Amount of Money Raised till Date (Rs. Cr.) | 4,047.69 |
| No. of Companies Migrated to Main Board | 147 |
| No. of Companies Listed as of Date | 233 |
| No. of Companies Suspended | 30 |
| No. of Companies Eligible for Trading | 201 |
| No. of Companies Traded | 76 |
NSE SME Emerge Exchange
Currently there are 133 listed companies on the NSE SME Emerge Exchange and as on 8 July 2022 49 companies were being traded.
Should you invest in the stocks listed on the SME exchange?
- It is possible to make high returns by investing in these firms, this comes along with a greater degree of risk as well, since smaller companies have untested business models and are more susceptible to shocks in their respective operating environments.
- The less stringent disclosure requirements can be a double-edged sword, since the investors may not be able to spot negative trends and take decisions accordingly early.
For a retail investor, it is better to take advice from a registered advisor before investing in companies listed on the SME exchange as these companies are inherently riskier, owing to the lower levels of liquidity, information disclosure and higher ticket size. At the same time, the fundamental principles of identifying investment opportunities are applicable to SMEs as they do to large corporates. Thus, Investors should select companies that are likely to grow their profits in future, have a reliable track record.
We hope this articles helps you understand all about Small and Medium Enterprises (SME) Exchange. If you need any assistance on Investments, Insurance or How To Invest In Mutual Funds Feel free to contact Wealth Baba. We will try to help you out in the best possible way.
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