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November 29, 2009

Will the latest attempt at "Stock Exchange for SMEs" take off?

Economic Times has a feature on the prospects and challenges of SEBI's recent decision to create a separate stock exchange platform for Small- and Medium-sized Enterprises (SMEs).
Ashish Gokhale, VP, capital markets at Edelweiss Capital believes that merchant bankers will come in depending on the company and its credentials.Edelweiss usually considers an issue size over the Rs 20 crore mark. But he does not completely rule out smaller issues. “The effort will surely be lesser in this case. And unlike large issues, since one issue can be managed by a single merchant banker, we might be able to work out the economics,” says Gokhale.

Bang adds that a number of new investment bankers are getting into merchant banking and will be setting up separate divisions for handling SMEs. “The need for adhering to Clause 49 (appointment of independent directors) could be a big impediment too as most SMEs businesses are family-owned or proprietor owned with old processes and systems,” he says...But the question that..a number of other stakeholders have is: how much liquidity will this platform be able to create? “If liquidity is not tradable , there might be a problem,” says Rathi. Alok Mittal, general partner at VC firm Canaan Partners agrees. “We will have to see how much liquidity is available. It will be critical to attract quality institutional investors and analysts,” he says.

While maintaining a minimum lot of Rs 1 lakh is necessary to bring in serious investors, it can also reduce liquidity. Retail investors and day traders who are essential for providing liquidity will stay away because of this move and it will be up to the merchant banker to make the market for three years.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at