The platform for small and medium enterprises (SMEs) is seeing active participation from institutional investors, especially mutual funds that have been traditionally investing only in the initial public offers of large, well-known companies on the BSE and the National Stock Exchange (NSE).
In the recent past, fund houses like HSBC Mutual Fund, DSP BlackRock Mutual Fund and Sundaram Mutual Fund, among others, have invested in the IPOs of at least eight SMEs. This is in sharp contrast to the earlier years when SME IPOs saw participation only from high net worth individuals and other corporate bodies, which led to many questioning the quality of investors in the SME segment. Incidentally, there have been a few instances of foreign institutional investors also bidding in such IPOs in recent times.
“SMEs are not start-ups in the sense that they are not looking at seed capital. They are profitable, have a track record and are available at fairly attractive valuations as well,” said Dhiraj Sachdev, senior vice president and fund manager, HSBC Global Asset Management.
Through two of its schemes, HSBC Infrastructure Equity Fund and HSBC Smallcap Fund, the fund house started investing in SME IPOs about six months ago and has invested in seven SME IPOs till date.
‘Approach is the same’
“We do our due diligence and look at the quality, balance sheet and cash flows. The fundamental approach is the same [that] we have when investing in large companies. We do not have a very high exposure though and around 5% of the combined [assets under management] of our two schemes would be in SMEs,” he added.
SME IPOs that saw bidding from MFs include South West Pinnacle Exploration, One Point One Solutions, Jash Engineering, Worth Peripherals, SS Infrastructure Development, MacPower CNC and AVG Logistics.
“SME stocks present wide varieties of opportunities with high growth potential and hence are [an] attractive portfolio diversification tool,” Mahavir Lunawat, MD, Pantomath Capital Advisors, an investment banking entity in the SME space.
“With the number of SME stocks increasing significantly and witnessing handsome returns, fund managers have started tracking this space more closely. We are seeing an increasing number of mutual funds, alternative investment funds and foreign portfolio investors participating,” he added. Both the BSE and NSE unveiled their respective SME platforms in 2012 and have since been aggressively pitching the segment to SMEs. Currently, there are more than 370 SMEs listed on the two platforms.
Interestingly, while the maximum number of SMEs have come from Gujarat followed by Maharashtra, States like Telangana, West Bengal, Uttar Pradesh, Jharkhand, Himachal Pradesh and Uttaranchal have also contributed to the geographical growth of the segment.
Recently, Sarveshwar Foods became the second-ever company from the State of Jammu & Kashmir to be ever listed on Indian exchanges, the first on SME platform.
