Small but Mighty: Everything you need to know about the euphoric SME IPOs


India’s IPO market is booming. With about 220+ IPOs in 2023 and 22 IPOs in the first month of 2024 alone, boils down to roughly one debut every single day on the exchanges. Among these, the ones grabbing the most eyeballs are the SME IPOs. The massive listing gains as a result of heavy oversubscription have lured the retail investors to bet big on these small- ticket offerings. This handbook seeks to provide investors with the knowledge and resources they need to make successful SME IPO investments.

Understanding the SME IPO Boom:

The surge of SME IPOs can be linked to various factors:

  • Dedicated and tailor-made platforms such as BSE SME and NSE EMERGE have facilitated in providing a favorable environment for the small companies to go public.
  • Increased investor interest and participation have fueled the SME IPOs market.
  • The overall economic conditions and the recent Bull Run have led many small enterprises to raise funds through the IPO route.
  • SEBI has eased the IPO norms for SMEs. Due to which such companies can have an accessible pathway for market entry.

Nowadays, we see most of the SME IPOs having a stellar debut. But what about holding it for a longer horizon? Will the buy-and-hold strategy work in SME stocks? Let’s crunch some numbers!

Since the launch of the SME indices in 2012, over one-third of the SME stocks have had negative returns to date. In 2021, for instance, 25% of SME IPOs are in the red, with losses reaching up to 94%. Up to 30% of SMEs that were listed in 2022 have seen their returns to date decline. In 2023, that figure is twenty-four percent.

“So, dear IPO Frenzies, not everything that glitters is gold. Don’t get lured by the returns and always have a look at the other side of the coin. Don’t let the FOMO (fear of missing out) of making quick money overrule your mind.” Below mentioned are a few tips which an investor may consider 🙂

Things to keep in mind by the investors before applying in SME IPOs:

  • Perform Due Diligence: Always check the promoter’s background (They must not be engaged in any kind of corporate wrongdoings)
  • Analyse Financials: Have a look at the financials of the company and its future growth prospects before applying for any IPO
  • Assess Liquidity:  It is important for investors to be aware that in smaller offerings, if they are allotted shares, there may be liquidity problems that prevent them from selling their shares right away after listing
  • Assess Market Conditions: Consider the prevailing market sentiment and economic conditions. Assess whether the market environment is conducive to IPO investments
  • Beware of Promoter Offloading: Be cautious if promoters are offloading their entire stake, as it may signal lack of confidence in the company’s future.
  • Grey Market Caution: The IPO grey market provides unofficial indications of listing prices and can be volatile. However, investors should not base their investment decisions solely on grey market prices
  •  Evaluate Valuations: Investors should also examine the company’s valuations. The offer price may be undervalued or overvalued depending on the company’s sector and its financial metrics.
  • Study Competitor Performance: Analyse the performance of the company’s competitors to gauge its standing within the industry.

With careful analysis and strategic planning, SME IPO investments might prove to be small but mighty chances for investors to diversify their portfolios and attain financial prosperity.

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