Being Small Is Beautiful, But Big Is Better

NSE’s SME platform “EMERGE”, symbolises the aspirations of a large number of entrepreneurs in different sectors and geographical locations, who are actively contributing to growth in India.NSE has always endeavored to build a credible platform for SMEs which would help them raise risk capital from informed investors who are looking for investing early in promising companies.

We believe EMERGE has an important role to play in facilitating capital raising by SMEs.. The EMERGE platform was launched in September 2012 and ever since the eco system is slowly but steadily shaping up. We see enthusiasm for and understanding of the platform in stakeholders from Entrepreneurs to Intermediaries to Investors.

Issuer Perspective

An exclusive stock exchange for SMEs enables SMEs to consider approaching capital markets as a new and viable option for raising capital in an efficient manner and scale up their businesses to compete globally. In view of the regulator’s definition of post listing paid up capital of Rs 25 crore, a large spectrum of SMEs are eligible to list on the SME platform and the amount of capital raised could also be significant.

Once listed, they will enjoy a higher profile and greater visibility, which will in turn improve their credibility with various stakeholders like customers, vendors, employees, etc. Being listed helps the SMEs to attract better quality talent and improve retention by incentivizing the employees. SME Exchange, while reducing the compliance and process requirements without compromising on risk management, enables product innovation and broad base equity funding. The SME Platform provides a new source of capital to SMEs and reduces their dependence on debt financing. As is well known, every company, including SME should have an appropriate debt-equity ratio to enable maintaining an ideal capital structure. Heavy dependence on debt capital from banks and financial institutions would definitely bring distortions in the capital structure in addition to increasing the vulnerability of the SMEs’ cash flows in adverse economic conditions.

What SMEs Need To Do To Prepare For Listing?

While a new SME exchange will enthuse a large number of SMEs, they need to understand the fact that they need to prepare months and sometimes years in advance to list on a bourse. Significant awareness has to be created amongst SMEs as to how should they prepare themselves for getting listed and raising capital. They have to be made aware of the importance of creating an organization structure which can handle growth and which is credible to the investors. Meeting with all the compliances and obligations after listing also requires in house competence which would need to be developed.

The companies should have a credible plan for utilizing the capital effectively so that the promised growth plan is realized. Last but not the least, the promoters should be committed for long term shareholder interest and all their actions should be aligned to meet this objective.

We are still in the early days of the EMERGE experiment, but the response has been encouraging. Market intermediaries have taken ownership of this new market and are prepared to invest their resources, as they see huge potential in attracting early-stage innovative companies. The EMERGE platform provides a unique opportunity for all the participants in the market ecosystem, whether they are small issuers, merchant bankers, wealth managers, or astute early-stage investors. With time, the EMERGE platform has the potential to revolutionise the way in which companies get access to public equity at the early stages of their development.