Should we be wary of the frenzy of SME IPOs?

Fears of a global slowdown and a weak macroeconomic landscape have not deterred Indian small and medium enterprises from entering the primary market this year.

Despite soured sentiment in secondary markets, 87 SMEs have launched their IPOs so far in calendar year 2022, raising Rs 1,460 crore compared to Rs 783 crore raised by 56 such companies last year.

In the first half of the current financial year, 62 SME IPOs were floated on the street and raised a total of Rs 1,078 crore, compared to 30 IPOs in the same period of 2021 -22, which raised Rs 346 crore, according to data from the PRIME database.

Analysts attribute this to a healthy domestic economy and liquidity conditions that have supported stock markets in recent years.

According to G Chokkalingam of Equinomics Research, the share of SMEs in overall market capitalization is less than 1% and the market will see a few thousand SMEs listed over the next five years. »

“These companies are very diverse and their performance would vary, but the wealth creation would be huge, as we have seen many of these companies become big companies in the past,” says G Chokkalingam, Founder and CIO, Equinomics Research.

However, experts advise caution in the face of the SME IPO frenzy amid the looming risks of a global recession.

With more than 40% of India’s exports driven by small and medium enterprises, the continued slowdown in global trade is increasing uncertainty for these domestic export players.

According to Kotak Securities, the United States and major European economies contribute nearly 50% of MSME exports. The impact on production would be felt in manufacturing, wholesale and retail trade. If the global situation were to worsen and significantly affect MSMEs, it could also slow credit and increase pressure on asset quality.

In addition, analysts remain wary of the record returns that SMEs have generated in the market.

Nine small and medium-sized companies made spectacular stock market debuts on October 10, with some of the counters even doubling in value. Six of those nine have kept the pop list close.

Talk to Trade standard, Ambareesh Baliga, an independent market analyst, says several SME stocks have become multi-baggers after listing. Investors flock to these shows to make easy money. This leads to the formation of foam in this space. I don’t know how long this frenzy will last.

Today, the market’s trajectory will be guided by global indices, domestic corporate earnings and the move of the Rupee.

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