Indian Investors Put Their Trust In SME IPOs, Lead The World With 92 Listings In The Year: Report

India has hosted 92 listings of companies offering up to $100 million, in the year, most in the world

But there are still concerns about corporate governance and lack of research when it comes to small IPOs.

Source : Getty

Truly, size doesn’t matter and the Indian investors have proven this statement by accepting small and medium enterprises (SME) IPOs with open arms. So far, India has hosted 92 listings of companies offering up to $100 million, in the year. Not only this, the Indian market leads the world in SME IPO listings so far. According to the data compiled by Bloomberg, the Indian market and investors have rallied behind SME IPOs.

Over the last two years, investors have suffered major losses due to large IPOs like Paytm, LIC, and many more. Now, the tide has shifted in favour of the small companies. While some of the SME companies have issues like poor trading liquidity and lax disclosure rules, market sentiment seems to be driving the retail investors who are willingly ignoring such concerns, the report noted. 

Abhishek Sharma, managing director at GYR Capital Advisors, said, “IPOs are a product of a bull run in stocks. Greater retail and institutional investor participation is providing tailwinds to these companies.”

The SME IPO index is outperforming and Indian major equity benchmarks have also hit record levels. Despite the sky-high interest rates since 2018, earnings and the economy have been growing. The SME IPO index grew by 26 per cent this year, while the NIFTY 50 index grew by a 9 per cent margin. 

Most SME IPOs in recent months have been oversubscribed, with Utkarsh Small Finance Bank receiving more bids by 102 times, while ideaForge Technology Ltd. being oversubscribed 106 times.

The SME IPO boom has arrived in the wake of abysmal performance by major IPOs in recent years. Insurer Life Insurance Corporation of India Ltd. (LIC) has fallen 33 per cent from it’s sale price during the IPO, the report noted. Paytm’s parent company, One97 Communications Ltd.’s share price is 60 per cent lower than its IPO price and Delhivery Ltd.’s share price is trading 18 per cent below it’s offer price. The average trader has shifted his support to the SME after losing faith in these large-scale IPOs. 

But there are still concerns about corporate governance and lack of research when it comes to the small IPOs. These companies often have bare institutional ownership and aren’t researched well by brokerages, the report cited. 

One such company, Nureca Ltd., which claims to be an Indian wellness products provider, surged 61 per cent on its debut in 2021, but currently has fallen down by 80 per cent from its peak. Another company Ashapura Intimates Fashion Ltd., a lingerie maker, witnessed a growth of 800 per cent in its shares in about 4 years after listing in 2013. The company filed for liquidation after being suspended in 2020. 

Gajendra Kothari, MD and CEO of Etica Wealth Pvt Ltd., commented on the risks associated with SME IPOs and said, “SME IPOs are far more riskier than the big ones because this space is little researched, there is very few institutional ownership, there are no foreign investors and no mutual funds,” as cited in the report.