Small is still beautiful and bountiful too !

Stock market investors looking for better than average returns on other investments, should now look at SME (Small and Medium Enterprises) stocks. If India has to emerge as the world’s fastest growing Economy and generate adequate jobs, MSME sector is the only recourse. Given the Companies in this segment being relatively smaller in size they have the capacity to grow their earnings faster than their larger peers. This in turn could drive up their stock prices. As per a survey of RBI when the economy grows MSME grows faster and vice versa.

One way to buy these tiny stocks would be through SME Exchanges of BSE and NSE –launched in 2012 and they do a brisk business with a cumulative market cap of Rs 11 K Cr in NSE- 185 companies and 237 companies @ 11500 cr in BSE.

In fact many of these stocks  have delivered multi-fold returns to investors, some even migrated from SME to main board, thus offering high liquidity. HSBC, DSP and Reliance Fund Managers have smartly picked up these stocks and got the benefits.  Companies with a 3 year track record can get on the SME Exchanges if their post-listing share capital is less than Rs 25  cr and if they have positive net worth, net tangible assets @ Rs 3 Cr and positive cash accruals from operations. They need to have a website, D mat facilities and no IP cases.

On the flip side, these shares are- 1. The IPOs of SME are not vetted by SEBI.                                     2. Liquidity is limited. 3. Small companies suffer from transparency issues, data  availability, auditing processes, Corporate governance issues, family/Individual run business sans professionalism et al –could be the points against these companies.

So investors need to be extremely cautious and go in for these stocks only after research based and credible recommendations are available. The advice from our side could be to be more discreet- watch their performance for some time, study their declared financials and fundamentals, Management, whether MFs and other institutions  are in for these stocks, their products and services, their market share and business model and their migration potential from MSME Exchange to main land exchange.

Wish you all a beneficial Investment in SME stocks through BSE/NSE –SME exchanges!

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