The government’s efforts to give a boost to trading in shares of small and medium enterprises (SME) through stock market platforms seem to have failed to strike a chord with investors.
Even after the launch of two dedicated exchanges for SME trading by both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), high net-worth individuals and private investors are still apprehensive about participating in these trades, mainly due to a lack of sufficient incentives for merchant bankers and the high cost of regulatory compliances, a study by the Federation of Indian Micro, Small and Medium Enterprises (FISME), has found.
While seven companies have got listed on BSE’s platform, there are only two on NSE’s, according to market sources. Trading remains insignificant on both exchanges.The two platforms were created to help small enterprises raise capital in the primary market through an initial public offering (IPO) or rights issues and provide them with equity financing opportunities.
Any company with an issue capital smaller than R10 crore at the time it makes its IPO is allowed to list on an SME platform. Merchant bankers who manage an SME listing are mandated to underwrite the new offering and appoint brokers to act as market-makers for at least three years from the date of listing. Market-makers are brokers who take the risk of holding shares to facilitate trading, in return for compensation.
“Intermediaries, including banks, have to identify right firms for listing,” said Atul Seksaria, a chartered accountant.
The study has suggested that the government should advise financial institutions to set aside a small portion of their investment funds earmarked for the capital market towards investments in SME exchanges.
“Investors were initially apprehensive because they didn’t have good experience in the earlier years, but now we’re trying to gain their confidence,” said Ravi Tyagi, head, NSE SME exchange.