History of SME Exchange in India

The need for a dedicated SME Exchange originated from the difficulties being faced by cash-starved SMEs. The small companies found it difficult to compete on the same platform as large companies, hence, failed to gain the visibility and credibility required to grow and expand.

The government realized the importance as well as the needs of SMEs and as a result, in January 2010 the Prime Minister’s Task Force recommended setting up of an exclusively dedicated exchange. SEBI took the cue and promptly framed the rules and regulations for smooth governance of these exchanges.

In response to these initiatives, BSE was the first one to come up with its SME Exchange in the year 2012. NSE also saw the prospects of an exclusive exchange for SMEs and set up its own exchange, NSE Emerge, in the same year.

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Growth of SME Exchange

The initial years witnessed teething problems and SME IPO listing was slow but past 3 years have witnessed remarkable growth.

Giving out the statistics regarding SME IPO listing, Mahavir Lunawat, group managing director, Pantomath Advisory Services Group says, “A total of 145 SMEs got listed with IPOs worth Rs 2,455 crore last year as compared with 133 firms garnering Rs 1,785 crore in 2017 through the route, according to data compiled by Pantomath Research.

Overall, a total of 474 firms have garnered Rs 5,825 crore since 2012, when leading stock exchanges- the BSE and the National Stock Exchange (NSE)- launched the SME platforms.”

Ashishkumar Chauhan, MD and CEO of BSE highlighted the success of SME Exchange while disclosing the latest data, “So far, 312 companies have been listed on the BSE SME platform and have collectively raised around Rs 3,200 crore and as many as 60 companies are in the pipeline to be listed on the BSE’s platform for small and medium-sized enterprises.”

Equally encouraging statistics were shared by Vikram Limaye, CEO, NSE, “The NSE Emerge platform offers an alternative funding mechanism to small and medium enterprises where they can tap the capital markets instead of only relying on bank funding, venture capital or private equity.”

Benefits to be Drawn by SME Exchange

SME IPO new listing on SME exchange rewards the small and medium companies in a big way.

Let us examine the advantages that SMEs can draw from listing on SME exchange:

Benefit #1. Offers an alternative funding mechanism

Benefit #2. Gives easy access to Capital through Equity

Benefit #3. Increases valuation

Benefit #4. Effective in the distribution of risk

Benefit #5. Enhances visibility and prestige

Benefit #6. Provides the opportunity for growth and expansion

Benefit #7. Enables liquidity

Benefit #8.  Improves corporate governance

Benefit #9. Investor friendly

Benefit #10. Seamless migration to the Main Board

By opting for SME IPO listing a company can forge ahead on the path of fulfilling its dream of growing ‘big’. (-Kritika Chabbra (Market Analyst, MUDS Management Pvt. Ltd.)

Tax Benefits by Listing on SME Exchange

There are huge tax benefits attached to SME IPO listing.

Benefit #1 Income Tax Act

By listing on recognized SME exchange a company can avail numerous benefits under the Income Tax Act.

An SME entrepreneur or investor can avail tax benefit on the transfer of shares of a listed company, which ultimately results in enormous tax savings.

On the one hand, the unlisted shares attract a tax of 20% on long-term capital gains whereas 30% on short-term capital gains; while on the other hand, if it’s a listed share, there is no tax on long-term capital gains, whereas on short-term capital gains tax is 15%. This, when compared to unlisted shares, is highly rewarding.

Benefit #2 Finance Act

Under the Finance Act unlisted companies incur a tax liability if they issue fresh equity shares but if an SME is listed and makes fresh equity infusions then no such tax liability is attracted to the shares of the company.

Benefit  #3 Other Tax Benefits

If a buyer acquires distressed assets of a listed company then also it is advantageous as it is exempted from the imposition of any tax. Hence, this works as a great motivational force for buyers to invest in distressed assets of a listed company.

“It is quite evident that strategic investors are more interested in investing in the market-driven transparent trading platform such as the BSE SME Exchange as it provides easy entry and exit policy.” – Isha Malik (Company Secretary, MUDS Management Pvt. Ltd.)

SME IPO Eligibility

These are the major eligibility criteria that a company has to fulfil in order to apply for IPO on SME exchange.

  • The issuer company should be incorporated under the Companies Act, 1956/2013 in India.
  • It is mandatory for the issuer company to have a Corporate Website.
  • The net tangible assets, as well as the net worth of the company, should be positive, as per the latest audited financial results. 
  • The Company must not be referred to the Board for Industrial and Financial Reconstruction (BIFR).  
  • There should be no winding-up petition in any Court against the company.  

5 Stages of Listing on SME Exchange

While going for listing, an SME should decode and understand this 5 Ps:

  1. Pre-Planning
  2. Preparation
  3. Process
  4. Public Offering
  5. Post Listing

“The procedure of listing on SME exchange is comparatively simplified as compared to Main Board, yet it involves lots of planning, hence, it is advisable to seek the help of SME IPO listing consultants”. – Kritika Chabbra (Market Analyst, MUDS Management Pvt. Ltd.

Conclusion

SMEs render unmatched contribution towards the overall development of any nation and likewise, in India, in the past decade, it has come out as a major growth driver.

Since the introduction of SME Platforms, the SMEs have thrived and with almost 55 million SMEs in the country today, it is no wonder that it has come out as the biggest employment generator.

MSMEs contribute 29% to the country’s GDP and going by the forecasts it is set to be 50% in the next 5 years.

According to the data given out in August 2019, BSE’s SME Exchange has 312 entities listed that have raised Rs 3,200 crore whereas NSE Emerge boasts of 200 companies listed which have raised Rs 3,100 crore.

“SMEs can take help of SME IPO consultants in IPO Listing and by taking advantage of it, grow and expand!”

By listing on SME Exchanges the SMEs have given wings to their dreams!
Shweta Gupta, (Founder and CEO, MUDS)

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