Market volatility clouds Gujarat SMEs' listing dreams

The number of units that may list from day one is likely to dip from what was envisaged about three months ago.

Recent market volatility and mounting economic concerns may play spoilsport for small and medium enterprises (SMEs) in Gujarat which were planning to list on the country’s first-ever dedicated bourse for SMEs — the SME Exchange.

The Bombay Stock Exchange (BSE) has already received final approval from the markets regulator, Securities and Exchange Board of India (Sebi), for the SME Exchange. However, entrepreneurs from Gujarat are cautious, having adopted a ‘wait-and-watch’ strategy.

Gujarat’s SMEs — spread across the chemicals and dyes, pharmaceuticals, engineering and auto parts sectors — were thought of as promising candidates to list. But the number of units that may list from day-one is likely to dip from what was envisaged about three months ago.

“To begin with, we are expecting at least three or four companies from Gujarat in the retail and pharma sectors to get listed on the SME Exchange. After Sebi’s approval, we are hopeful of starting operations from November," said Lakshman Gugulothu, chief executive officer of the BSE SME Exchange.

However, in July, during a campaign in Gujarat to promote awareness about the new exchange, exchange officials confidently said they expected at least 10 SMEs from Gujarat to list on the new exchange, out of a total of 50 SMEs expected do so nationwide. The most promising sectors included real estate, pharma, trading, manufacturing, retail and services, they said.

Industry insiders feel that the current uncertainty on the economic front and the equity markets will hurt investors' willingness to invest in SMEs and deter entrepreneurs from venturing into the capital markets, for fear of a lukewarm response.

“First, the cost of an initial public offer (IPO) and its marketing are huge and SMEs raising funds of less than Rs 100 crore would find it difficult to cope up with such costs. Second, the uncertain economic scenario will prompt merchant bankers and promoters to make up all sorts of efforts to ensure enough subscription to the IPO,” said Sanjeev Shah, a Vadodara-based chartered accountant and investment banker.

Industry insiders said many companies from Gujarat are reconsidering their plans to list on the SME Exchange. “At least one company from Gujarat having operations in power equipment and transmission has for the time being shelved its plan to raise funds by listing on the SME Exchange," added Shah, who was also a Sebi-appointed public interest director at Vadodara Stock Exchange (VSE) in 2008.