Small and Medium Enterprises (SMEs) are the backbone of a nation's economy. Like any other major economy, India too enjoys its fair share of SMEs which constitute bulk of the industrial base, also contributing significantly to the exports and GDP. Its segment has been a key engine of growth, wealth distribution, employment and effective mobilization of resources in India.
SMEs is a field which gives birth to mega corporations of the future, so they should plan their finances and structure their balance sheets in a way which can support the future growth and as a result it turns into a mega business house. Strengthening /arrangements of equity funds is the basis for future funding and why not SMEs should participate in the process of raising money from the public at the initial stage itself so that when it requires major equity contribution for the growth they don’t face any problem to do so.
Need for SME Listing:
The need of a dedicated SME Listing can be attributed to several factors including the following:
• A dedicated SME Listing will provide SMEs with equity financing opportunities to grow their business - from expansion to acquisitions
• Listing the company would facilitate expansion of the investor’s base, which in turn help company get secondary market for equity financing, including private placement.
• With the availability of equity financing options, the debt burden can be set lower resulting in a healthier balance sheet and lowered financing cost
• Company's visibility will improve with the coverage from analysts and media that can add to the credence and image of the SME leading to benchmarking its fair value
• The listing would result in an increased participation by venture capital players as they would have a ready, transparent and tax-efficient exit route.
• Listing would add value to the companies who wish to make use of ESOPs and other stock base compensation plans as a tool to reward and retain their employees. It is expected to encourage innovation and entrepreneurial spirit, much required from the perspective of Indian national economy.
• Capital Market allows distribution of risk efficiently by transferring risk to those who are best able to bear it.
• SME sector will grow better on two pillars of financial system, i.e., banking for debt capital and Capital Market for equity capital.