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HomeIPOMSME Redefined: A New Era in IPO Strategies

MSME Redefined: A New Era in IPO Strategies

In the grand tapestry of India’s economic landscape, small and medium-sized enterprises (MSMEs) play a pivotal role, contributing a remarkable 33% to the nation’s total GDP. These unsung heroes are not just the backbone but also the heartbeat of India’s vibrant entrepreneurial spirit. Let’s delve into the intricacies of a story often overlooked.

Behind these enterprises lies a potential so vast that predictions whisper of them contributing a substantial USD 1 trillion to India’s exports by 2028. This staggering statistic underscores the profound influence MSMEs hold in shaping India’s future economic trajectory. Join us on this exploration as we navigate the challenges, envision the reforms, and witness how empowering MSMEs within the IPO arena could redefine the narrative of India’s economic success story.

Classification  Investment in Plant & Machinery or Equipment (in INR)  Annual Turnover (in INR) 
Micro Enterprise  ≤ 1 crore ≤ 5 crores
Small Enterprise  ≤ 10 crores ≤ 50 crores
Medium Enterprise  ≤ 50 crores ≤ 250 crores

 

Challenges faced by MSMEs:

In the intricate tapestry of India’s economic landscape, the challenges faced by Micro, Small, and Medium Enterprises (MSMEs) form a critical narrative. These smaller firms, while constituting a formidable force, often grapple with the formidable issue of access to finance. Startlingly, a mere 16% of MSMEs manage to secure timely financial support, leaving the majority reliant on their limited resources.

Further complicating matters, outdated technologies and subpar productivity levels plague the MSME sector, creating a stark contrast when pitted against their larger counterparts. Despite being pivotal cogs in the wheel of larger industries, many MSMEs struggle to maintain the professionalism needed to thrive in today’s business world. This vulnerability exposes them to the shadows of corruption and the misuse of power, casting a long shadow over their productivity and potential.

Overall IPO landscape:

Main Board IPOs

In recent years, India’s IPO market has surged, with 2021 seeing 63 IPOs raising a staggering Rs 1.2 lakh crores, followed by 53 IPOs in 2022 that garnered Rs 59,000 crores. In 2023, 49 IPOs have already raised Rs 27,000 crores. However, despite the cumulative fundraising of approximately Rs 2.05 lakh crores, the IPO market hasn’t yet become the backbone of capital expenditure (capex). Surprisingly, around 165 company promoters have reaped the benefits, averaging Rs 1350 crores each, highlighting a concentration of funds. Intriguingly, investors in these 165 IPOs experienced losses, a stark contrast to the Chinese IPO scene where investors enjoyed returns of 100% to 500% despite similar IPO sizes of 5 to 7 billion dollars.

In the SME segment, approximately 126 IPOs have either recently debuted or are in the pipeline, with an astonishing average oversubscription rate of roughly 60 times.

HNIs as Pillars of Support for MSMEs

While Small and Medium Enterprises (SMEs) may not be the primary focus for entities like Qualified Institutional Placement (QIP), Foreign Portfolio Investors (FPI), and Domestic Institutional Investors (DII), High Net Worth Individuals (HNIs) step into bridge this gap effectively. HNIs occupy a critical role in the SME investment landscape, offering the support and guidance that these enterprises need to flourish and eventually join the elite Rs 1000+ crore club.

A striking example of HNIs catalyzing MSME success is illustrated by recent events. Renowned actors Ranbir Kapoor and Amir Khan lent their support to DroneAcharya, a company specializing in drone technology. The result? A stellar debut for the venture, showcasing the pivotal role HNIs can play in propelling MSMEs to new heights in the financial arena.

Read: Mainboard IPO Vs SME IPO

Addressing the lower participation rate of merchant banks can be effectively achieved through strategic policy measures. This increased engagement not only has the potential to bolster the SME sector but also promises to have a positive impact on employment rates across the nation. By ushering the SME sector into the mainstream and making it accessible to retail investors, we have the remarkable opportunity to captivate the interest of a significant portion of India’s population—potentially attracting as much as 20% of the population into the stock market, a substantial leap from the current 4%.

This, in turn, aligns seamlessly with the vision of a “New Bharat, Mera Bharat,” where economic growth and prosperity are shared by a broader segment of our society.

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