Trading activity in SME stocks lags even as market sees new listings

Trading in small and medium enterprise (SME) shares has not been keeping pace with new listings of late.

   

Trading activity can be gauged by the average of the number of trades executed, the companies whose shares change hands, number of shares changing hands, and the value of these transactions.

   

While the number of companies whose shares are traded is up, the number of trades has been coming down while the value and quantity of shares changing hands has actually shrunk.

   

The number of trades was only up 6.4 per cent year-on-year on the BSE SME platform in August compared to a 13.2 per cent increase last year.

   

The average value of the shares changing hands has fallen 10.4 per cent in the same period, and the actual number of shares which changed hands has declined by over 25 per cent.

   

The NSE data for July shows a similar trend. (The data for August was not available.)

   

The available number is for average daily turnover which shows a 46.9 per cent decline year-on-year as of July-end. The mainboard average daily turnover was down 32.2 per cent during the same period. The report with subsequent numbers is yet to be published.

   

“I have been advising my clients to be very careful,” said Alok Churiwala, former vice-chairman, BSE Brokers’ Forum and managing director at Churiwala Securities.

   

He has told his clients that any investments in the SME space should be done only after clients are confident about the management and comfortable with the business overall. The segment has allowed a large number of companies to raise significant capital as intended but also carries the risk of potential fly-by-night operators.   

   

Lower trading activity comes on the back of a booming initial public offer (IPO) market. There have been

 

201 such companies which hit the market after August 2024, shows July-end numbers from tracker primedatabase.com.

   

Market makers provide liquidity for a period of three years after an SME IPO.

   

The end of such periods for various companies may play a role. But over 40 per cent of the companies which have hit the market ever have been from 2023-24 onwards which means that market making should still be ongoing for them.

   

To be sure, some of this may also reflect larger companies moving from the SME segment to the mainboard. Data from the BSE shows 608 companies listed raising a cumulative ₹10,912.15 crore on the BSE’s SME platform since inception in 2012 and 196 have moved to the mainboard.

   

The total value of the BSE-listed SME companies (including migrated ones) was ₹1.8 trillion as of August-end.

   

The NSE platform shows 647 listings raising ₹ 18,697 crore with 147 companies having moved to the main board as of July. The total value of NSE-listed SMEs was ₹2.2 trillion as of July-end.

   

Emails sent to the exchanges did not immediately receive a reply.

   

A financial planner pointed out that small-cap companies with lower liquidity have a history of deeper declines during times of market stress. The SME segment consists of companies smaller than the smallest small-cap names.

   

The aggregate financial performance has been robust in the financial year 2024-25 (FY25). The segment has clocked over 25 per cent growth in sales across both the NSE and the BSE. Profit has grown over 30 per cent (chart 2).

   

Many SMEs tend to be domestic-focused enterprises, pointed out Churiwala and are thus less at risk from tariffs and attendant geopolitical issues, he said.