The perception of SME investments as risky and illiquid is slowly fading. While concerns remain, a positive trend has emerged in the past 4-5 years, fuelled by significant increases in daily trading volume and investor participation.
From a meager 50 crore to a robust 350 crore daily, the combined trading volume of BSE and NSE SME companies has witnessed a remarkable 7-fold increase in the last 4-5 years.
Retail investors are increasingly confident in SME IPOs, recognizing the potential for exit on listing day or even later. This is reflected in the massive oversubscription of retail quotas, often exceeding 200-1000 times.
Previously hesitant, QIB participation has skyrocketed in 2023, with investments in 74 IPOs compared to just 25 in the entire decade preceding 2022. This indicates their growing confidence in the long-term potential of well-managed and profitable SME companies.
Landmark investments by Morgan Stanley in 4 SME IPOs in 2023 mark the entry of foreign players, recognizing the potential in the sector. This trend is expected to continue in 2024, attracting further global interest.
The combined surge in retail, QIB, and foreign investor participation in SME IPOs is a strong indicator of improving liquidity in the sector. This trend is expected to accelerate over the next 5 years, driven by:
Growing investor education and understanding of SME potential.
Government initiatives aimed at easing regulations and simplifying processes for SME IPOs.
Continued focus on attracting high-quality SMEs with strong track records and governance structures.
