26 Jan 2018 13:31 IST

Why value investors are flocking to SME platforms

The 336 firms that have raised ₹3,450 cr come with risks, but offer big returns

With valuation of small-cap stocks hitting the roof even in the absence of substantial signs of a turnaround in their financial performance, marquee investors and institutional investors are fishing for investment opportunities in stocks listed on dedicated SME platforms of the NSE and the BSE.

Among the investors who have exposure to stocks listed on the SME platform are Chandir Gidwani, Centrum Group founder; Jaspal Bindra, former Stanc Bank Asia Chief; Madhusudan Kela and Sunil Singhania, former fund managers of Reliance Capital; Ramesh Damani, Member of BSE; and Sunny Veliyath Porinju and Vijay Mohan, ace value investors. Some of these professionals have quit their jobs recently and have invested in high-growth and risky SME assets.

These investors, and others, including YES Bank, HSBC Mutual Fund, Sundaram Mutual Fund, Blue Lotus Capital Multi Bagger Fund-I and Reliance Mutual Fund, have together invested about ₹35 crore in SME stocks.

Surging stock price

The stock prices of most companies that these investors have picked up have doubled in the past one year, although in many cases it was from a low base.

In fact, the buoyant demand has helped 132 SMEs raise ₹1,785 crore in 2017, whereas in 2016, 66 companies raised ₹540 crore through the IPO route. In the past one month, seven SMEs have collectively raised ₹79 crore and have notched up a market capitalisation of ₹367 crore.

To date, 336 companies have raised ₹3,450 crore by listing on the NSE Emerge and the BSE SME and command a market-cap of ₹34,437 crore. Last year, the market-cap of the two SME platforms had more than doubled to ₹11,290 crore from ₹5,343 crore in 2016.

Mahavir Lunawat, Managing Director, Pantomath Advisory Services Group, said SMEs have just begun to emerge on the exchange platform and they have the potential to exceed the market-cap of the main bourse even if only 1 per cent of the five crore SMEs in the country lists on the exchange platform.

SMEs gain on many fronts by listing on an exchange platform. They get to clean up their balance sheets and improve their credit rating, which in turn lowers their bank finance cost by 3-5 per cent; they also get to raise short-term finance by pledging equity, he added.

Pantomath Advisory managed 60 SME IPOs that together raised over ₹600 crore last year. It also manages ₹50 crore under its alternative investment fund and portfolio management service launched recently.