SME IPO index hits record high, up over 30% in April; 3 key factors propelling the rally
- SME IPO index hits all-time high, up 30% in April despite regulatory concerns. Interest in SMEs rebounds with strong IPO listings. Top gainers include KP Green Engineering, Sonalis Consumer Products, and more.
The SME IPO index touched a new all time high today at 69,603.62 level. April has seen an almost 30% increase in the index thus far. Despite regulatory worries about valuations and manipulations in some counters the index managed to rebound. The resurgence of interest in SMEs comes after a weak time in March during which the index dropped 10.8% following the chairperson of the Securities and Exchange Board of India (SEBI), Madhabi Puri Buch, expressed concerns about the sector's impressive growth in the previous two years.
Market analysts emphasized that good firms will continue to do well in any scenario, even though SEBI's warning was necessary. There is greater interest since the SME IPOs are listing strongly. Due to the higher speculative and retail demand in most SME IPOs, investors are willing to pay any price for an investment in these offerings.
Top 10 gainers over the past month are KP Green Engineering Ltd (up 119.5%), Sonalis Consumer Products Ltd (up 77.2%), Bondada Engineering Ltd (up 66.6%), Harshdeep Hortico Ltd (up 53.9%), Deepak Chemtex Ltd (up 53.6%), Vrundavan Plantation Ltd (up 49.9%), Shri Balaji Valve Components Ltd (up 45.7%), Meson Valves India Ltd (up 41.7%), Shanti Spintex Ltd (up 40.9%), and Chatha Foods Ltd (up 38.7%), according to data available on Trendlyne.
Experts in the market analyse the key factors that are propelling the rally. Let's take a look at them.
A constant addition to the number of shares included under this index
The founder of Kejriwal Research and Investment Services, Arun Kejriwal, believes that the BSE SME IPO's success may be attributed to two or three factors. There is a constant influx of shares listed under this index. The number of shares added keeps rising. There is barely a single share of the present SME enthusiasm that does not open within, say, the first three days and doubles. Additionally, SME shares that are oversubscribed by over 100 times often perform at three times the issue price in the first month. The difference between the issue price and the market price is what the index calculates.
SMEs perceived as option for diversifying portfolios
Tarun Singh, MD at Highbrow Securities, highlighted that the SME Index in India hitting its highest level ever is a big deal in the world of investing, signalling a dual narrative of resilience and strategic investment realignment. Given that even major investors and fund houses are now shifting their focus to SMEs, particularly during these times of global economic uncertainty, to safeguard against potential losses—a strategy technically known as a 'flight to safety'—it is evident that SMEs are perceived as both a secure and strategic option for diversifying portfolios. This shift illustrates a broader recognition of SMEs' comparability in stability and growth potential to their larger counterparts, underscoring their critical role in economic diversification and their emerging status as vital contributors to India's economic dynamism and health.
As to Vinit Bolinjkar, Head of Research at Ventura Securities, investors may perceive SMEs as having higher growth potential than well-established enterprises. SMEs can provide an equity portfolio with benefits of diversification. The increase may also be a reflection of general confidence toward the Indian economy. The SME market has raised ₹2,012 crore in the first three months of 2024. Through SME platforms, ₹4,686 crore was raised in 2023—a 2.5-fold increase over the amount raised in 2022. Since the debut of the SME platforms in 2012, this was also the largest fundraising effort made through them in a single year.
Government initiatives support the SME sector
Dr. Ravi Singh, SVP - Retail Research of Religare Broking Ltd said that the Indian market has become increasingly investor and industry-friendly for SME and MSME IPOs in recent years. These smaller enterprises have drawn significant attention, offering aggressive returns that have attracted both retail and institutional investors. Many SME IPOs have provided "multibagger returns", with around 85% performing well on the bourses.
The government has simplified the capital raising process, introduced investor protection measures, and created an enabling environment for businesses to launch IPOs. This IPO boom is not confined to any specific sector, with diverse industries like media, manufacturing, textiles, and more enthusiastically participating.
The government's various initiatives supporting the SME sector, coupled with IPO-friendly policies, are acting as strong tailwinds for the continued success of SME and MSME public offerings.
Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.
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