IPO Support

AIFs to Tap into the Growth Potential of SME-Focused IPOs

Recent high returns from SME IPOs, combined with strong government support, have prompted Alternative Investment Funds to explore the sector; ‘s potential, AIFs are privately pooled investment vehicles established in India. The newly launched Paradise Moon Investment Fund aims to raise Rs 750 crore over the next few years, focusing on investors’ investment in Category 1 Alternative Investment to leverage SME market growth pre-IPO and post-IPO. The fund offers a unique opportunity to capitalize on the dynamic SME IPO.

The Registered Alternative Investment Fund aims to provide investors with an opportunity to tap into the growth potential of SME IPOs. With around 900 SMEs listed on the National Stock Exchange and BSE platform in recent years, the sector has gained significant traction and substantial growth, contributing a third of India’s GDP. The BSE MSE index has delivered annualized gains of up to 195% over the past decade, with investments showing a remarkable return.

What are SME IPOs?

Medium-sized businesses seeking growth capital can opt to list their shares publicly and sell stock to investors, providing an alternative to traditional venture capital or private equity funding. This approach offers emerging companies in their early growth stages a viable route to secure capital and expand their operations.

This definitive guide aims to explore all essential aspects of SME IPOs, offering valuable insights for both issuers and investors. It will cover the benefits and challenges of going public, the process of conducting an IPO, and how investors can evaluate and leverage these growth opportunities.

Forecast about SME IPO for the Coming Years

The AIFs to Tap Growth Potential of SME-Focused IPOs and make SME IPOs remain positive for the coming year. It is driven by strong investors returns and confidence from retail, and institutional investors, despite external challenges. The year 2023 was a record-breaking period for SMEs with over 180 companies raising Rs 4,686.11 crore through IPOs. The SME segment’s strong performance is attributed to high investor appetite, a resilient market and fundamentally sound companies.

Since the launch of the BSE and NSE listing platform by BSE and NSE in 2012, nearly 950 SMEs have raised about Rs14,700 crore and saw an exceptional IPO performance, including listing gains, driven by serious retail investor participation.

Factors Contributing to the Growth Potential of SME-Focused IPOs through AIFs

The connection of SME IPOs and AIFs is poised for substantial growth in the coming years. Several factors contribute to the growth potential of SME-focused IPOs through AIFs:

1. Strong Performance of SME IPOs

The performance of SME IPOs in recent years has captivated investors, demonstrating the potential for high returns. The increased investor interest such as HNIs, retail, and institutional investors are increasingly recognizing the value proposition of SME IPOs.

2. AIFs as an Ideal vehicle

AIFs offer a diversified investment portfolio, reducing risk exposure and catering to various investor risk appetites and investment horizons. Also, AIF investment in pre-IPO stages provides early-stage exposure.

3. Support of Government

The government policies promoting SME growth and capital markets development are creating a favourable environment. The simplified regulations for AIFs and SME IPOs are expected to encourage participation.

4. Expansion of the SME Ecosystem

The increasing adoption of technology is enhancing SME efficiency and scalability. A large pool of promising SMEs is emerging, offering abundant investment opportunities.

Know about the Role of SEBI in SME IPOs

SEBI introduced a dedicated SME stock exchange platform to help small and medium enterprises raise public capital through IPO listings. These platforms offer relaxed eligibility norms compared to mainline IPOs, making it easier for high-potential SMEs to access growth equity from investors with less stringent compliance requirements. The key benefits are:

· Companies

• Access to substantial growth capital for expansion.
• Increased brand visibility within a broader investor community.
• Early liquidity opportunities that help attract and retain talent.
• A pathway of potential mainline listings in the future.

· Investors

• Opportunities to invest in emerging enterprises with growth potential.
• Diversification option beyond large-cap stocks,
• The potential for significant returns, rewarding those with a higher risk appetite.
• The chance to invest early in promising future sector leaders.

What is the Atmanirbhar Bharat Initiative by the Government to Grow MSMEs?

Under the Atmanirbhar Bharat initiative, the government unveiled a Rs 50,000 crore equity infusion for MSMEs through a Fund of Funds in July 2023 as part of the Self-Reliant India (SRI) Fund which is managed by NSIC Venture Capital Fund, this fund provides equity funding to promising MSMEs with the potential to expand into larger enterprises. The government has allocated Rs 10,000 crore for this purpose, with the remaining funds to be sourced from private venture capital.

Conclusion

Alternative Investment Funds are strategically positioned to harness the growth potential of SME IPOs, offering significant opportunities for investors and contributing to the expansion of the SME sector. The performance of SME IPOs supported by favourable government policies and dynamic market conditions underlines the promising future for SMEs. For assistance in Alternative investment fund registration and IPO support services, visit www.enterslice.com

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