BSE SME IPO index hits record high, soars over 18% in three weeks

During the same period, benchmark indices Sensex and Nifty rose 5 percent each, while the BSE MidCap and SmallCap indices gained 9 percent and 11 percent, respectively

The BSE SME IPO Index has witnessed a robust rally, surging nearly 18 per cent in the past three weeks to hit record levels. The sentiment reflected heightened investors' confidence in small and mid-market companies.

Though there was a 13 per cent correction in October-November, the resilience in the index is powered by good post-listing performance, sector-specific growth prospects and heightened retail participation on small and medium enterprise (SME) initial public offerings (IPOs), analysts said. In contrast, broader indices such as the Sensex and Nifty remain volatile amid global macroeconomic uncertainties.

The SME IPO Index has risen in 14 of the past 16 sessions, gaining 18.4 per cent from November 18 to date and has achieved a record-high closing level. During intraday trading on August 28, the index reached an all-time high of 114,991.49, standing just 1.3 per cent below this peak as of now. During the same period, benchmark indices Sensex and Nifty rose 5 per cent each, while the BSE MidCap and SmallCap indices gained 9 per cent and 11 per cent, respectively.

Of the 72 companies in the SME IPO Index, 50 have delivered positive returns since September 18. Among them, 22 companies posted gains exceeding 20 per cent, while 10 returned nearly 10 per cent. Another 26 firms delivered modest gains between 1 and 9 per cent.

Leading the pack, Afcom Holdings surged over 84 per cent in the past three weeks, followed by Royal Sense and Greenhitech Ventures, up over 50 per cent and 40 per cent, respectively. On the downside, Mish Designs dropped over 15 per cent, while 3C IT Solutions & Telecoms India and Kalyani Cast Tech Ltd declined 14 per cent each.

Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities, highlighted the heightened risk appetite among market participants, as seen by the robust performance of the BSE SME IPO Index, despite corrections in frontline indices.

Sheth cited that this trend is not limited to India. Globally, investors are displaying a strong appetite for risk, with assets such as Bitcoin trading at all-time highs. Similarly, in the Indian market, the Nifty SmallCap and MicroCap indices are at record levels, even as the Nifty and Sensex lag. This broader trend indicates a resurgence in risk-taking behaviour, with SME stocks, small-caps, micro-caps, and even cryptocurrencies reflecting investors’ growing confidence.

Experts also attributed the continued surge in SME stock prices to a significant uptick in SME IPO activity. In November, 11 SME IPOs collectively raised over Rs 592 crore, while another 11 IPOs slated for December aim to raise more than Rs 400 crore. So far in 2024, around 236 companies have raised a record Rs 8,600 crore through SME IPOs, marking the highest-ever capital raised via SME IPOs.

Deepak Jasani, Head of Retail Research at HDFC Securities, explained that the BSE SME IPO Index is highly sensitive to market sentiment, often exhibiting greater volatility than the Nifty. When the Nifty rises, the SME IPO Index tends to outperform, but it also experiences sharper declines during market downturns.

Jasani pointed out that the limited float in SME stocks contributes to their price volatility. Even modest buying activity can significantly drive up prices, and the same effect applies in reverse during sell-offs. However, Jasani raised concerns about stretched valuations in the SME segment. He said that while these companies have considerable growth potential, their earnings base is generally low. This often leads to an overestimation of future growth prospects, resulting in inflated valuations, he added.

Analysts have advised investors to conduct thorough due diligence on SME stocks, focusing on company fundamentals, growth prospects, and earnings potential. Retail investors are encouraged to use trailing stop losses to manage volatility and to consider booking partial profits as prices rise to avoid regrets during market corrections.