Fears of a global slowdown and a weak macroeconomic landscape have not stopped India’s small and medium-sized businesses from entering the primary market this year.
Despite the somber mood in the secondary markets, 87 SMEs have launched their IPOs so far in calendar year 2022, raising Rs 1,460 crore versus Rs 783 crore raised by 56 such companies last year.
In the first half of the current financial year, 62 SME IPOs took to the streets, raising a total of Rs 1,078 crore, compared with 30 IPOs in the same period 2021-22 raising Rs 346 crore, data from the PRIME database showed .
Analysts attribute this to a healthy domestic economy and the liquidity conditions that have buoyed equity markets in recent years.
According to Equinomics Research’s G. Chokkalingam, SMEs represent less than 1% of total market capitalization and the market will see a few thousand SMEs going public over the next five years.”
“These companies are broadly diversified and their performance would vary, but the wealth accumulation would be tremendous as we have seen many of these companies grow into large companies in the past,” said G Chokkalingam, Founder and CIO of Equinomics Research.
However, experts advise caution against the frenzy of SME IPOs given the looming risks of a global recession.
With over 40% of Indian exports being led by medium and small companies, the ongoing slowdown in global trade is increasing uncertainty for these domestic export players.
According to Kotak Securities, the US and major European economies account for nearly 50% of MSME exports. The impact on the production side would affect manufacturing, wholesale and retail. Should the global situation worsen and significantly affect MSMEs, this could also slow down lending and increase pressure on asset quality.
Also, analysts remain wary of the record returns SMEs have reaped in the market.
Nine small and medium-sized companies made stellar debuts on October 10, with some of the counters doubling in value. Six of these nine barely stayed on the listing.
Speaking to Business Standard, independent market analyst Ambareesh Baliga says several SME stocks have become multi-baggers after listing. Investors flock to these themes to make easy money. This causes foam to form in this space. Unsure how long this frenzy will last.
Today the market development is guided by global signals, domestic corporate earnings and the development of the rupee.
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