SME IPO frenzy: Sebi's Ashwani Bhatia says rigor lacking, venture capital a better start

In order to unlock the true potential of MSMEs, Bhatia noted that there is a need for more partnerships

Currently, there are 600 SME companies listed on both exchanges, with the market capitalization of these companies exceeding Rs 2 lakh crore. But SEBI’s whole-time member Ashwini Bhatia, who was speaking at CII’s Financing 3.0 Summit, believes that there needs to be some caution.

On SME IPO’s Bhatia said, "Nobody is actually saying no. I am a banker, and we were taught to say no when necessary." Bhatia added that unfortunately, this rigorous approach is sometimes lacking in the current ecosystem, including among chartered accountants, merchant bankers, and exchanges.

Bhatia added, "Be good doctors to these companies. Don’t give them steroids when they can survive on paracetamol."

Instead, Bhatia highlighted that there are many alternatives available including crowdfunding, angel investors, venture capitalists, peer-to-peer lending, and microfinance.

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Among the three main categories of AIFs, category 1 includes funds that invest in socially or economically beneficial sectors.

Currently, Bhatia noted that commitments in Category 1 AIF SME funds amount to Rs 1,169 crore as of March 31, 2024. "Instead of going straight to an IPO, a better route might be to approach an angel fund or a venture fund first," he suggested. Bhatia explained that the expectations of some of the SMEs are very high. “You can’t have a parabolic growth. The role of the CAs and bankers is to temper these expectations. These opportunities are there but one needs to go slow,” he explained.

In order to unlock the true potential of MSMEs, Bhatia noted that there is a need for more partnerships. "MSME sector financing depends on a mix of traditional banking, equity financing, and alternative credit mechanisms, hence a detailed and joint approach is needed to tackle issues such as high interest rates and collateral requirements, ultimately creating a more supportive environment for MSMEs," he said.