A slowdown in SME IPOs is being observed, with factors like market corrections, evolving investor sentiment, and regulatory changes at play. On SmallCap Spotlight, Mr. Ajay Thakur, a key voice in the SME exchange space, shares insights on the current landscape and what may drive future revival.
Mubina Kapasi: Hello everyone and welcome to SmallCap Spotlight. For a very long time on this channel we have got you exclusive interviews with theme companies to talk about their businesses the strategy and how they view their respective industries but here’s a very interesting phenomena in theme listing ecosystem that someone has pointed out the number of IPOs in that hemisphere and that ecosystem is declining what’s leading to that is it waning investor interest higher regulatory issues or is it themes no longer feel the need to tap the public markets.
For that I have with me a voice that is respected in theme space and in fact has been the pioneer of uh theme exchanges in India as we know it and that is Mr Ajay Thakur. He is the CEO and managing partner and the CEO of TGISME Capital Advisors LLP. Mr Thakur, thank you so much for joining us today on SmallCap Spotlight. To begin with sir I’d like to talk to you about um something that you have recently noticed observed and you know spelled doubt on your platform as well. What do you think? Have you been observing there was this massive rush of sorts for SME IPOs but now as per your data and your research you think that that has been declining. If you could first talk to us about this phenomena and what’s leading to it?
Ajay Thakur: Yeah, thank you Mubina for inviting me on the platform. It’s really a pleasure talking to you uh in fact we uh post covid if you see the scenario we have seen almost uh you know 70 million investors adding to the capital market you know and post covid you know there was uh you know sectoral bull run uh secular bull run in the market and therefore investors participations kept on increasing. But in October 2024 onwards we have seen massive selling by fines though there was participation till the month of January. But post that we have seen huge crash in a small cap midcap stocks. Even market has fallen almost 10-12% and investors start shying away from the market.
First time we have seen the investors you know uh losing faith in the market because earlier they have not seen uh the bear market so when they start seeing the crash happening in uh many of the stocks that they were owning they started you know selling the uh shares and till March the selling was too much uh and suddenly the buyers started uh moving away from the market and uh this has happened especially in the small cap midcap stocks and also on the SME platform. In the SME space you know as we start seeing QIB HNI I start you know started uh moving out of the market the participation starts coming down okay. In 2024 also we have seen few episodes happening where two three companies were barred from the capital market. Regulators have taken action uh but what has happened you know the media has the everybody started covering it very negatively. There was a lot of negativity about SME platform as if uh a lot of things are happening wrong and of course regulators entered into it they have you know taken the advice of various stakeholders of the in the capital market which were uh working intensively on the SME platform and then come out with some changes in the guidelines but it was more for the good of the market.
So that there should be an healthy growth uh there were some curves in that some surveillance measures were taken uh like introduction of ESM1 ESM2 and once a company entered into ESM2 then they have to go in periodic call option so all these things you know have come simultaneously okay where market has passed we have seen periodic call options happening and at the same time regulatory curves happened on the SME platform.When all these things happened simultaneously uh investors started shying away from platform and therefore even uh nowadays we are seeing that the investors participation have reduced, merchant bankers even after getting the approval you know made to the investors only when they are sued that issues are going to be fully subscribed and uh substantial QIB participation is going to come then only they open the issue. So of course 25 26 uh we are not seeing uh that uh number of SMEs coming which we have seen in the preceding years.
Mubina Kapasi: You know Mr Thakur you mentioned market crash now um see this is something that yes retail investors will definitely get spooked especially a lot of the newer investors who you know for them this is the first instance of market crash but for QIBs and HNIs who are more sophisticated who are also intelligent enough to know that you have to play the long-term game when you invest wouldn’t it be a bit um short-sighted of them as well to think that okay the markets has crashed so let me start pulling out because when you are looking at SMEs it’s like you’re investing in a business and you have to be in it for the long term
Ajay Thakur: See what has happened on the SMEs platform let me tell you in last three four years many of the AFS got creative that that means alternative investment funds okay that also comes under the QIB category now mutual fund and fi never invest on the the SME platform even if they invest they invest a small amount of money so this the SME platform where we have seen the QIB participations they were the anchor investors which have been formed in five six uh anchor investors which were in the form of alternative investment funds AIF which got registered in last five years they were participating for the first time so first two years because their market was good number of AIS kept on increasing they kept on investing and they invested in larger chunk of money but when the market crashed and let me tell you SME platform from day one was not made for retail investors as such. Initially also if you see the minimum ticket size of investment was more than a lakh which has been now increased to two lakh.
Whereas if you see the main wood the minimum ticket size is approximately 14,000 and the issue size is also big here the issue size not big at the same time minimum investment ticket size is also big so when the such when we see such a crash in the market especially small cap uh companies and the companies on the SME platform they see the liquidity drying up and when the liquidity start drying up people you know people don’t get exit very fast and this restricts the participation of the QIB and HNI because they have larger ticket side.
So therefore uh because of the lack of liquidity uh uh resulting because of the beer market we have seen lesser participations by the square once the liquidity will go up once we will start seeing gold coming onto the SME platform uh again the participation will come so this has happened in 2017 also we have seen that you know in that during those stage also there was bull run especially in the small and midcap stocks which further moved to SME counter and after that 3 years there was a l period. So time time also you know of course two three years of bull run on the SME platform now there is lack of interest by the investors larger investors as well as uh HNI and retail investors but once the things started improving you know once uh uh the investors start gaining confidence, merchant bankers start getting confidence and other intermediaries started confidence we will see the investors coming back on this contest. But for the time being what I’m hearing from the market is that yes there is a slowdown uh there they lack let’s say interest by the uh investors and therefore merchant bankers are hesitant in opening the issues on the the SME platform.
Mubina Kapasi: Yeah very interesting i think that point especially I think you mentioned that the objective also of this exchange was to promote the institutional investors to you know sort of come in and u infuse thesememes with capital which is something that they any which ways needed. Do you think that even amidst this slowdown of sorts there are certain sectors certain pockets where there is still interest and you’re still seeing you know money coming in because yes IPOs have slowed down but they haven’t stopped completely. So could you tell us a bit about that.
Ajay Thakur: Yes of course they have not stopped uh completely uh a few companies where by yesterday or day before yesterday got closed where the company was subscribed almost 375 times then there was another one or two issues whereby we have seen huge subscription coming even post listing the sale price has appreciated by almost I think 32 to 35% so I think that you know if if the merchant bankers are suing the companies of the sunrise sectors and meet the QIB and institutional investors or the larger investors who have bought family uh offices uh then uh you know these companies get used subscription and when such names come as an anchor investor or QIB then other investors al also follow the trend and therefore we see you know such use subscription coming on this company but again you know if we see 23-24 the number of companies coming in almost all companies we were seeing huge subscription.
Now these are exceptional situations exceptions companies uh whereby we are seeing such type of uh subscription maybe uh you know one or two or three maximum.
Mubina Kapasi: Okay got it you know you mentioned that merchant bankers are now being very selective very careful about uh the companies that they are taking and I think you listed some of those factors as well that they are looking at could you just reiterate again for our viewers that what are those factors they are looking at sunrise sector? who are the anchor investors? Uh you know what are these things that they’re looking at and more closely looking at before considering that okay whether they should take up a company?
Ajay Thakur: Of course of course there are two three factors for example you know when those large investors who have got big name in the market okay along with them they bring credibility to the company when such investors enter into this companies one thing the other investors are sure that because this company is good you because all the investors don’t are not so financially uh lifted or expert or they understand the balance sheet and PL account of the uh company or their future growth about their future growth.
So when they see such big investors coming and you know coming as an anchor investors and even few QIBs when they are coming other investors try to follow the trend. Even in the QIB sector okay so these things are important but at the same time the valuation of the company okay if the valuation is attractive if the promoters are keeping something for the investors okay they are not taking everything in their pocket I think those are also those things also become reasons for the investors to participate in the IPO so I think these things are very important but of course as I have already told you that the merchant bankers are trying to p selective companies whereby they are themselves sure that the pelvation is attractive uh the company is uh going to grow by 20 to 25%, the corporate governance is good, uh the valuation that is coming is good and the investors uh are going to make money if they are invested for 2 three years or four years.
So such companies are being liked by these type of investors and then followed by other set of investors.
Mubina Kapasi: I think you answered my next question as well about valuations you know that um I’m still going to ask you though that do you think that now if a company wants to you know go for an IPO the merchant bank will will have to be even more aggressive when it comes to valuations to get that garner that kind of market interest that they used to earlier perhaps earlier had the upper hand because you used to get subscriptions by the throngs. But do you think things have changed now?
Ajay Thakur: see let me tell you in the capital market everywhere there is a change whenever there is a bull market whether it’s a SME or the main board company all of them get uh great valuation okay whatever the promoters want they get that type of valuation we have seen in the main board happening we have seen in the the SME board happening but when the markets are not good know promoters have to be you know very much satisfied with whatever the valuation they are getting they should not try to demand more in fact many of the times when I was meeting to the promoters what I observed was that you know promoters are demanding very high valuation as if this is the time only and they always take the capital market as to be a static market.
They must understand the capital market is a dynamic market and it is going to reward you in the longer term whereby the valuation will be determined by the uh forces of the capital market and you start attracting premiums as you go on the journey of the uh stock exchange listing. So I think these things need to be understood by the promoters and if they come here and bring the IPO at a right valuation at attractive valuations of course uh the investors will look to those companies. They will like to invest in those companies but let me tell you today pitching to the investors is becoming difficult by the merchant bankers. Uh you know it was like you know Silicon Valley crash when we have seen in the PVC space uh the even the P and VC investors were very selective in choosing the startups or investing.
So today the scenario is same you know the investors are very selective out of 100 company maybe one or two company they will like they will like to invest in those companies if the valuation is good if the company is good if the sector is good if the promoters are good if the governance is there, if transparency is there, in the company uh the brand is well known then investors will participate larger investors will participate. But nowadays you know even the merchant bankers are looking for some good driver who should come and uh drive the company as an investor. So then only you know promoters are merchant bankers are sure and merchant bankers here on the SME platform you understand understand that the here laws are very difficult okay guidelines are very difficult the issues needs to be 100% under. There is no compliances as far as IPO and documentation and papers are concerned, there is no relaxation, the due diligence the compliances are one and the same as that of the main port companies.
Only the post listing compliances are being relaxed. So therefore the merchant bankers have to understand that the due diligence is the most important aspect in all the company they should do proper due diligence and then they start pitching the company. So you they you you know on the theme platform because nowadays the the you know media gear is there if you do something uh wrong here and there if there is no proper due diligence then immediately you may come in the notice of so many people and then people will start talking to you on their YouTube channels and so on so forth so that will put further pressure on the uh stock exchange and the SEBI and then may they may think of uh curbing other guidelines also. So I think these things the merchant bankers have to keep in mind the promoters have to keep in mind and then they should start pitching their company.
Mubina Kapasi: Very good points okay um since we are speaking about regulatory framework and we went in that direction do you think that this now for example recently these norms were announced one of them was this two lakh rupee uh minimum investment or ticket size, do you think that that has also been a reason why to some extent along with the market crash that liquidity has been sucked off from the SME markets uh because retail participation has been superb there’s been no doubt about that. But do you think that right now the framework is such that it is kind of curbing this enthusiasm as well um you know in this uh in the entire theme uh you know the SME ecosystem
Ajay Thakur: See SME platform was always for the larger investor if you see the already the ticket size was somewhere around 1 lakh 20,000 to 1 lakh 40,000 so taking it to two lakh what regulators want that retail investors should be away from the SME platform because as per SEBI guideline minimum uh you know retail investment ticket size is 2 lakh rupee so if they are moving from away above two lakh rupees, it means that retail investors are not a lot in the SME platform so what sebi want that initial hand holding should be by the larger investors larger sector of investors because they are risky investments and that’s why sebi might have done all these things of course that it is going to hit the liquidity because if the retail investors are not there liquidity will dry up and then you know even the larger set of investors because you know capital market is nothing but liquidity they said the liquidity you you will find less number of investors and when you go to the market everybody will say when I was running the SME platform every now and then large investors were telling me is sir uh we don’t want to work on this in this space because there is no liquidity at all where will you generate liquidity and if if the investors will ask for exit where can where will I give the exit to them.
So these are the issues okay these issue may arise so that’s why market making mechanism was there but it has also its limited purpose because when there will be huge selling or huge buying then you know market making will also become difficult. So of course liquidity is a big concern when it comes to the SME platform by many of the players but investors must need to understand that the SME investment is not a short-term investment it’s a long-term investment okay and that’s why uh you know uh 3 years uh you know time period has been created for migrating from SME platform to the main port. So do 3 years handholding on these companies remain invested for 3 years once they migrate to the main board they transform into uh bigger company and then you can think of exit so that was the whole purpose but you know nowadays you know investors always want that whenever they want they should take an exit and 3 years is too long and uh you know today with the disruptions in the market anything can happen.
There may be regulatory disruptions there can be some innovations because of which there will be disruption which can you know tinker with the liquidity. So investors want the liquidity at all point of time whether one year two year three years like that and SME platform again let me tell you PVCs which are more in that frame of mind that they remain invested for 3 years, four years, 5 year – capital market is not that ball uh you know that game. Here you know investors would like to uh turn their portfolio very quickly. So this is the difference but today SME platform, from day one it has been conceived to uh you know that larger set of investors remain invested with the company for longer period.
Mubina Kapasi: Let’s talk about this entire phenomena also of more and more companies listing at a discount compared to the issue price again. Would you attribute it to this entire phenomena of losing interest uh reducing liquidity etc and again do you think it’s a temporary phenomena that we are seeing?
Ajay Thakur: So you know if you see in last one and a half years we have all sorts of investors whenever investors saw you know getting uh you know some premium on their investment on the day of listing uh they used to set and at but at that point of time you know we have uh equal amount of buyers who were participating on the SMA platform so uh they outperformed the seller because number of buyers were more sellers were less and therefore it didn’t impact the price of the company on the day of listing.
But after this uh especially in the year 2025 post March what we observed that again the selling is the same okay uh on the day of listing but buyers are not participating and there is a mismatch so seller number of sellers are more but the buyers are very less and therefore we are seeing there is a discounting on the day of listing uh from the uh price which has been given at the time of IPA.
Mubina Kapasi: Do you think then that somewhere down the line the SMEs themselves and of course with the merchant bankers could work on providing better price stability. Do you think somewhere down the line they would be able to help in that?
Ajay Thakur: Well see that is not the job of the promoters the promoter start participating it it tends to you know uh uh in some insider trading or uh manipulation or speculation something like that and of course promoters are not aware about the market so somebody will try to take even the undue advantage so there will be compliance issue and uh it’s better that the promoters must uh not uh you know participate in all those activities. Merchant bankers their job is to do the market making they try to uh stabilize the price as much as they can but unless until they have have got the support of buyers they themselves can’t do anything. So that is the issue you know we have seen.
Look the most important thing in this SMO system is the participation of institutional investors. QIB are one who you know give confidence to uh other investors as well as you know they stabilize the price also share price also. So that has been seen in in last uh one or two years so unless until their participation there some big family business is participating on the SMB platform and some big name started coming and maybe later on even if we start seeing uh mutual fund participation uh till that time I don’t think that you know anything can stabilize the share price. So promoters should shy away from the market, their job is to only present their companies in front of the investors and the rest job is to be done by the merchant bankers who can pitch to the company. And, then let us uh leave it in the hands of the investors so that will be the fair thing to do
Mubina Kapasi: What do you think will trigger perhaps a reversal back to that boom era that we saw in SME IPOs. Because this year like you mentioned there might be a bit of a slowdown, but do you think there are any external factors or triggers which could turn things around again?
Ajay Thakur: Yeah I think so i think so once uh many of the companies where the sale prices has come down if in those companies we again start seeing that investors participation come coming. If the results will start improving of these company which we have seen this year and many of SMEs have given extraordinary performance and we have seen investors participation was again coming. So if all those things start happening and the investors confidence will start growing we see you know uh company some companies getting listed at premium I think uh investors will once again come back and they will take the uh market uh to uh to the same uh place from where it has fallen. So I think good days will also come but capital market is like a cycle some bad days some good days. Bad days remain for long good days remain short. This time perhaps first time in the history we have seen four years of of uh you know secular bull run in the market. But in the times of to come and as the Indian economy is growing uh and uh as everybody is talking about that is a fastest growing economy uh I think uh the backbone of Indian economy that is SMEs are going to perform better. Investors should uh and the merchant bankers and other intermediaries to must do the handholding of these small medium companies is very important.
The most important thing is not only to bring the laws but also to create a a smooth functioning and a smart functioning of the uh this ecosystem okay and thereby I think all the stakeholders you know all the participants need to play very vital role to ensure that this theme platform should grow further and further. These are the backbone so if we unless until we give them equity funding they will not grow and then employment will also not get created. We will not see equitable codes especially in the tier three cities. So it’s very important for all the stakeholder to ensure as this theme platform uh keep on growing
Mubina Kapasi: I mean very good point SMEs today contribute around like 40 to 50% of India’s GDP and like you mentioned they go straight into tier 2 tier three areas where employment etc is something that is the need of the hour so this is the way that one can you know maybe even contribute to uh to that uh to that segment of society. Any role models of sort that you have seen that have done well in the in listing in post listing as well could you share some examples of a successful SME IPO?
Ajay Thakur: There many of them even if you talk about recent times uh I have seen uh Unifield got listed it has already grown uh I think last week only it got listed uh day before yesterday one company got I am forgetting the name but JY was the merchant banker if I’m not wrong uh there the issue got subscribed 375 times I have seen the QIB portion itself got subscribed 175 times so it’s not like that you know QIB will not participate or uh you know uh investors will not participate but as far as HNI and retail investors are concerned, they always follow the big name so that big name gives a lot of credibility to these companies and then they start jumping into the bandwagon.
So I think this is very important uh the big names uh my request will be that no of course they are very much focused on the large cap and midcap but if they will start big names who are very well-known celebrity investors uh sometimes they are critic of the SMA platform also but instead of criticism know because the criticism can uh bring the market down but if you want to create a sustainable growth oriented market then there needs to be uh thorough analysis uh it should be looked into very positively by the critics and ensure that there should be healthy growth on SME platform not by the votes but also by the dets and by investment so I think if these things will come into place uh I think this SME platform can take off we know all these celebrities who are well known in the market. My request to them that they should start uh you know investing, participating and handholding onto the SMA platform and SMA platform will then reach to their heights.
Mubina Kapasi: Okay so if today an SME let’s say had is looking for listing themselves on the SME exchanges, what advice would you like to give them of of course apart from trying to woo a celebrity investor like you mentioned but apart from that you know what what would you tell them what would you advise?
Ajay Thakur: See, of course one thing I will always say you know you do thousands of good things, you will hardly get credit but if some wrong thing gets happen no everybody will bounce on you everywhere. Okay and many people are looking for that opportunity also to bounce up on you so my suggestion to all the intermediaries, to all the participants, to all the promoters is to be ethical.
You know money will come sooner or later. Be ethical. Have transparency in your business, have corporate governance, best ethical practices, always try to have sustainable growth in your company, keep your mind alert eyes and ear open and then this platform will take you to the new heights. Intermediaries also have to ensure that they should do proper due diligence. Their any activity not should not bring bad name to the SMA platform. The stock exchanges, people like us the CEO and MD of the stock exchange they have worked day and night. SEBI has worked very hard to ensure the success of SMA platform and today platform is on only because of the hard work of these people.
So I think that the other participants, other people also should ensure that there should be a healthy and sustainable growth of the SMA platform.
Mubina Kapasi: Okay, Mr. Thakur pearls of wisdom indeed thank you so much for joining us today and very good words of advice. Really, ethics is something that’s extremely important in today’s day and age and you know if you’ve got that straight in your book which per you know perpetrates through your entire team then you’ve taken the first right step. Thank you so much Mr. Thakur for joining us.
Ajay Thakur: My pleasure.
Mubina Kapasi: Thank you and thank you viewers for tuning in i hope you enjoyed this conversation stay tuned to SmallCap Spotlight. We’ll be back with more