In India, small and medium-sized enterprises (SMEs) play a vital role in the economy, contributing significantly to employment generation and economic growth. To facilitate the growth of SMEs and provide them with access to capital, the National Stock Exchange (NSE) introduced the SME Securities Market. In this article, we will explore what the NSE SME Securities Market is, how it works, and the benefits it offers to SMEs and investors.
Understanding the NSE SME Securities Market
The NSE SME Securities Market is a specialized platform that allows small and medium enterprises to list their shares and raise capital from the public. It is an alternative to the main stock exchange for SMEs that may not meet the stringent listing requirements of the regular stock exchange. The platform was introduced to provide these growing businesses with an opportunity to access equity capital and expand their operations.
The NSE SME platform operates as a separate segment within the NSE. SMEs seeking to list on this platform need to comply with the NSE’s specific listing and disclosure norms tailored for smaller companies. These norms are designed to strike a balance between facilitating SME fundraising and safeguarding the interests of investors.
How Does the NSE SME Securities Market Work?
The functioning of the NSE SME Securities Market involves several key steps:
1. Eligibility and Application:
SMEs interested in listing on the NSE SME platform must meet certain eligibility criteria, including minimum post-issue paid-up capital, net tangible assets, and track record of profitability. Once an SME fulfills these conditions, it can apply for listing by submitting the necessary documents to the NSE.
2. Due Diligence and Approval:
The NSE conducts a thorough due diligence process to ensure the credibility and authenticity of the SME. This includes verification of financial statements, business operations, and compliance with regulatory requirements. If the NSE is satisfied with the SME’s eligibility and due diligence, it grants approval for listing on the SME platform.
3. Issue and IPO:
After approval, the SME can proceed with the Initial Public Offering (IPO) to raise funds from the public. The SME issues shares to investors in exchange for capital, and the IPO is open for subscription for a specific period. Investors interested in buying the SME’s shares can apply during this subscription period.
4. Listing and Trading:
Upon successful completion of the IPO and receipt of necessary regulatory approvals, the SME’s shares are listed and admitted to trading on the NSE SME platform. The shares can now be bought and sold by investors on the platform, providing liquidity to the SME’s shareholders.
Benefits of the NSE SME Securities Market
The NSE SME Securities Market offers several benefits to SMEs and investors:
1. Access to Capital:
SMEs can raise capital from the public through IPOs, providing them with funds for expansion, modernization, and other business requirements. The platform bridges the funding gap and enables SMEs to compete and grow in the market.
2. Enhanced Visibility and Credibility:
Listing on the NSE SME platform enhances the visibility and credibility of SMEs. It provides them with a recognized platform to showcase their business and attract potential investors and partners.
3. Liquidity for Shareholders:
The platform offers liquidity to shareholders of SMEs as their shares can be traded on the exchange. Investors have the flexibility to buy or sell shares based on their investment goals and risk appetite.
4. Investor Protection:
The NSE SME platform ensures investor protection by implementing strict disclosure norms and conducting due diligence on SMEs before listing. This safeguards the interests of investors and promotes confidence in the market.
5. Tailored Listing Requirements:
The listing requirements of the NSE SME platform are designed specifically for SMEs, taking into consideration their size and operational capabilities. This makes it easier for SMEs to list and access the capital market.
Eligibility Criteria for Listing on the NSE SME Securities Market
To be eligible for listing on the NSE SME platform, SMEs must fulfill certain criteria:
1. Company Type:
The SME should be a public limited company or a partnership firm that is converted into a public limited company before listing.
2. Minimum Post-Issue Paid-up Capital:
The SME should have a minimum post-issue paid-up capital of INR 3 crores.
3. Net Tangible Assets:
The SME should have a minimum net tangible asset of INR 3 crores as per its latest audited financial statements.
4. Track Record of Profitability:
The SME should have a positive net worth in each of the preceding three years, and it should have a track record of distributable profits for at least two out of the preceding three years.
5. Compliance:
The SME should be compliant with all the necessary legal and regulatory requirements, including the Companies Act and the SEBI guidelines.
Listing Process on the NSE SME Securities Market
The process of listing on the NSE SME platform involves the following steps:
1. Application and Due Diligence:
The SME applies for listing with the NSE and undergoes a detailed due diligence process. The NSE verifies the SME’s financials, business operations, and compliance records.
2. Draft Prospectus:
The SME prepares a draft prospectus containing all relevant information about the company, its operations, financial performance, and future plans. The draft prospectus is filed with the NSE for review.
3. Approval and SEBI Filing:
Upon satisfying the due diligence requirements and meeting the necessary criteria, the NSE grants approval for listing. The SME then files the prospectus with the Securities and Exchange Board of India (SEBI) for its final approval.
4. IPO and Allotment:
The SME launches the IPO and invites investors to subscribe to its shares. After the subscription period ends, the SME allots shares to the investors based on the demand and availability of shares.
5. Listing and Trading:
Upon receiving necessary approvals, the SME’s shares are listed on the NSE SME platform. Investors can buy and sell the shares on the exchange, providing liquidity to the shareholders.
Conclusion
The NSE SME Securities Market serves as a crucial platform for small and medium enterprises to access capital and fuel their growth journey. By listing on this platform, SMEs can gain credibility, visibility, and investor participation, which are essential for their expansion and success. At the same time, investors get an opportunity to invest in promising SMEs and be a part of their growth story.
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By Astrobulls Research Pvt Ltd.