The recent analysis of SME IPOs (Small and Medium Enterprises Initial Public Offerings) over the past one to two years indicates that these investments can yield long-term value, despite prevailing caution among regulators and market experts. Out of 105 SME IPOs launched between September 2022 and September 2023, 55 have delivered multi bagger returns, while 39 offered returns below 50%, with one company reporting a significant loss of 96%.
Market professionals suggest that the potential for sustained growth exists, particularly for SMEs backed by experienced founders and strong business models. Narinder Wadhwa from SKI Capital emphasizes that the investment appeal should be based on company fundamentals and growth potential rather than past performance.
Recent scrutiny of the SME market has raised concerns about inflated valuations and investor speculation, prompting regulatory measures such as enhanced scrutiny of draft papers and a 90% cap on listing gains. This increased caution is reflected in the grey market, where many IPOs have shown little demand before listing.
Despite the challenges, analysts argue that high returns indicate strong potential for outperformance for diligent investors. Key growth metrics, such as a reported revenue increase of 30-50% and improving profit margins, suggest that many SME stocks are not solely driven by speculation but have solid fundamentals supporting their growth.
Experts advise investors to look for indications of confidence, such as participation from domestic and foreign institutional investors (DIIs and FIIs) and a clear purpose for fund allocation, which often signals potential growth.
Overall, while the SME IPO market faces scrutiny, the data indicates that it offers opportunities for long-term value creation, provided investors remain cautious and conduct thorough due diligence.
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