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Investors who were willing to take on higher risk and invest in mid- and small-cap stocks should have reaped good returns in 2016-17. The S&P BSE Mid and Small Cap Index gained 34 per cent in this period.
While this appears bountiful, another set of stocks did much better — those listed and traded on the BSE SME platform.
A comparison of the performance of stocks with market capitalisation of less than ₹1,000 crore traded on the main board of the BSE with those listed on the BSE SME platform throws up some interesting facts.
The top gainer in FY17 on the SME platform was Umiya Tubes, which gained over nine times. Tejnaksh Healthcare came next, recording an almost eight-fold price increase.
Thirumalai Chemicals, which was the top gainer among the smaller stocks on the main board, only trebled.
The BSE SME IPO index rallied an impressive 67 per cent in FY17. This index tracks the performance of the stocks on the exchange’s SME platform in the three years immediately after listing.
While only 8 per cent of the small-cap stocks on the main board gained more than 100 per cent, almost 15 per cent of the stocks on the SME platform were able to double their price in 2016-17.
Losses recorded on the SME platform were also lower, with 30 per cent of the stocks yielding negative returns in FY17 compared to 40 per cent of the small-cap stocks listed on the main exchange.
Smaller size, higher riskThe BSE’s SME platform has over 150 companies and any company with a post-issue paid-up capital and net worth of at least ₹3 crore can list on the platform.
The company should have distributable profits in at least two of the preceding three financial years.
When the face-value of the capital is ₹10 crore, the company can opt to move to the main board of the exchange. Around 22 of the companies have migrated from the SME platform to the main board.
The SME platform was formed to enable smaller enterprises to raise money through the equity market.
Listing and disclosure requirements for these companies are not too stringent. But that increases the risk manifold.
(The writers are interning with BusinessLine.)
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