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19 Nov 2024
Small and medium-sized enterprises (SMEs) have become a focal point for investors seeking quick returns, increasingly tapping into public markets. According to Trivesh D, COO of Tradejini, retail investors find SME IPOs an attractive yet high-risk option for diversifying their portfolios.
Between April 1 and October 31, 2024, there was a significant rise in SME IPOs in India, with 169 out of 217 IPOs (about 78%) originating from SMEs. Despite the high volume of listings, these IPOs only accounted for 6% of the total funds raised, indicating the limited capital these companies attract per IPO, making them vulnerable to market manipulation.
In the year-to-date (YTD) for 2024, SME IPOs have raised ₹8,288 crore, marking the highest amount so far. In comparison, they raised ₹4,967 crore in 2023 and ₹1,995 crore in 2022.
Trivesh D highlighted the increasing popularity of SME IPOs among companies aiming to go public. Data shows these IPOs have yielded notable returns, with median listing-day gains at 34.43% and a YTD median return of 33.09%.
In contrast, mainboard IPOs reported an average listing-day gain of 23% and a YTD gain of 25%. This performance has attracted high-net-worth investors (HNIs), who are optimistic about short-term returns but may be underestimating the sustainability of these gains, as noted by Trivesh D.
SMEs have evolved in their approach to listing, with initial focus on short-term gains gradually shifting towards a more corporate mindset. This change is particularly evident as younger generations and former employees take on larger management roles, bringing a strategic outlook to operations. Despite these improvements, Trivesh D warns that SME stocks still carry substantial risks for investors.
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