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Foreign Institutional Investors (FIIs) have been rapidly exiting Indian markets, and this high-speed exodus does not look like it will stop anytime soon. In October 2024, FIIs withdrew Rs 1,14,445.89 crores from Indian markets. Yesterday, FIIs withdrew $770.67 million from the markets, with equity outflows of $440.86 million and debt outflows standing at $327.44 million across various categories. Per NSDL data, hybrid outflows amounted to $2.31 million. While this may sound dissuading at first, a recent SBI report underlined that FIIs still hold a massive $ 18.241 billion in Indian markets. So far, FY25 has seen FII inflows worth $ 8.924 billion. However, the situation may quickly turn alarming as well, given that FII holdings in Indian equities have already come down to a 12-year low. Says Anirudh Garg, Partner and Fund Manager at Invasset PMS, "The current valuation of Indian stocks, trading at around 24 times expected earnings, appears high compared to Chinese stocks, which are at approximately 10 times. Economic concerns, including weak corporate earnings and declining consumer demand, further exacerbate this situation. Additionally, renewed fears of inflation and potential monetary tightening by central banks have led FIIs to withdraw from the Indian market." In the meantime, DIIs (domestic institutional investors) are stepping in big time. During October 2024, DIIs infused Rs 1,07,254.68 crore in Indian markets. In November so far, DIIs have been keeping the fund momentum going, infusing Rs 12,265.74 crore in India, while FIIs have offloaded Rs 16,445.49 crore this month. But despite this strong uptick, SBI's recent report suggests that consumer confidence in India remains below 100, signaling muted positivity and optimism in the economy. While household consumption is gradually recovering, it grew at 4% last year, much below the 7% levels recorded pre-pandemic. <h2>FII share in <keyword id="20868945" type="General" weightage="20" keywordseo="NSE-listed-companies" source="keywords">NSE-listed companies</keyword> takes a dip, DII stake rise </h2>FIIs share in NSE-listed companies stood at 15.98% in October, with assets under their custody in the equity segment coming to Rs 71.08 lakh crore last month. In September, this stood at Rs 77.96 crore. Experts suggest that this is likely to continue for some time to come. Mutual funds, on the other hand, saw their share in NSE-listed companies hit a record high of 9.58%, as opposed to their 9.32% stake in September 2024. FIIs turned net sellers in the debt segment as well in October, dumping $771 million in Indian markets. This comes after 2 consecutive months of healthy inflows in this segment in August and September 2024, where the figures stood at $2,806 million and $2,295 million, respectively.

FII stake in Indian equities dips to a 12-year low

Missing some action, adrenaline rush, and thrill in your life? Are the good old, albeit mundane money investment avenues like mutual funds and fixed deposits not making the cut for you? Want to experience a heart-pounding, financial rollercoaster that will constantly keep you and your portfolio on tenterhooks? Well then, welcome to the world of initial public offers (IPOs), especially those brought to you by SMEs, or <keyword id="6375845" type="General" weightage="20" keywordseo="Small-and-Medium-Enterprises" source="Orion">small and medium enterprises</keyword>. Truth be told, <keyword id="3704207" type="General" weightage="100" keywordseo="SME-IPOs" source="Orion">SME IPOs</keyword> have been all over the bourses this year. So far, 2024 has seen 206 SMEs debuting on both BSE and NSE, out of which 146 listed in gains and 46 listed in losses. Odds seem good, right? In contrast, the year has only seen 63 IPOs from the elder brother i.e. mainboard, only 48 of which managed to post any listing gains. And getting an allotment has also been a major uncertainty, given the unusually high demand this year. <h2>So, what's an SME <keyword id="6354763" type="General" weightage="20" keywordseo="IPO" source="Orion">IPO</keyword>, you ask?</h2>Think of a mainboard company as Shah Rukh or Salman Khan—well-established, financially stable, strong legacy of profitability, and fairly well-known. On the other hand, SMEs are your Prateek Gandhi (Harshad Mehta, Scam 1992), Siddhant Chaturvedi (MC Sher, Gully Boy) or Avinash Tiwary (Majnu, Laila Majnu). While they are doing super well, they are yet to make it big like the Khans. They’re currently underdogs, lesser known, but who knows? They can be the next big thing in the future! And SME IPOs are getting a stellar reception. In 2023, 182 such IPOs had raised a substantial Rs 4,967 crore. In 2024, more than 200 companies have already raised over Rs 7,500 crore, and we have four months to go. This, with one quarter of the year still remaining. <div type="image" title="In 2024, India leads IPO activity in the Asia-Pacific region" height="900" width="1200" msid="113875643" hostid="261" caption="&amp;lt;p&amp;gt;In 2024, India leads IPO activity in the Asia-Pacific region&amp;lt;/p&amp;gt;"></div> But what does it take for a company to be classified as a small enterprise? The company has to have an annual turnover/income of up to Rs 50 crore, and for a medium enterprise to be called so, its annual income has to be up to Rs 250 crore. When such companies go public, in a bid to raise funds from investors and expand their operations, they launch an IPO, but not on the main exchange, but separately, on NSE’s Emerge and BSE’s SME platform. As of September 2024, <keyword id="4484133" type="General" weightage="20" keywordseo="NSE-Emerge" source="Orion">NSE Emerge</keyword> has 147 listed participants, while <keyword id="1885131" type="General" weightage="20" keywordseo="BSE-SME" source="Orion">BSE SME</keyword> has 155 market makers. Mounting an SME’s IPO is comparatively less stringent than their mainboard counterparts, as far as regulations are concerned since their DRHPs (draft <keyword id="12225712" type="General" weightage="20" keywordseo="Red-herring-prospectus" source="Orion">red herring prospectus</keyword>) are not filed with SEBI. So, wouldn’t a lenient treatment make them inherently riskier? Why are they so appealing, you ask? <a href="https://www.businessinsider.in/stock-market/news/a-company-with-8-employees-looking-to-raise-12-crore-ended-up-getting-applications-worth-over-4700-crore/articleshow/112824522.cms">Delhi firm with just 8 employees seeks ₹12 crore via IPO, gets ₹4,700 crore worth of investor applications!</a> Well, for one, some of them have delivered exceptional returns—we’re talking 100%, 200%. Consider this—Owais Metal and Mineral Processing, which launched its IPO in February this year, delivered a whopping listing gain of 201%. Another SME, Maxposure, whose IPO was out in January 2024, had earned its investors listing gains worth 317.40%! Apparently, higher risks also mean higher returns, and also super high investment. Most SME IPOs need a minimum investment of Rs 1,00,000 or more, as opposed to mainboard IPOs, where you can buy one lot of shares for anywhere between Rs 14,000-15,000. Even the minimum trading lot size for SME shares is about 10,000. In short, you’d have to potentially empty your pockets to invest in an SME IPO. And still, there’s no guarantee that the listing will fill your wallets. For all you know, your pockets before and after the IPO is listed might stay the same - EMPTY! There's also the question of whether or not these SMEs are able to maintain their listing day mojo, or do they just fizzle out thereafter? Data from Prime Database highlights more instances of the latter. As of August 2024, about 166 SME IPOs had made it to the exchanges. Around 72 of them, or close to 50%, could not sustain their momentum going ahead, and were trading below their listing day prices. Consider this. The post listing gains of Medicamen Organics, whose IPO came out in June 2024, earned its investors massive listing gains of over 300%, by listing at Rs 137.85, significantly higher than its price issue price, which was set between Rs 32-34. But as of October 1, 2024, the stock was trading at Rs 64.2. Talk about falls. Additionally, risks of pump-and-dump, and illiquidity, among others makes SME IPOs dangerous See, you're largely venturing into unknown, pitch-dark territories, without much light to guide you. For starters, SME IPOs face less scrutiny from market watchdog SEBI. This also means they are able to list quickly, just 3-4 months. On the other hand, mainboard IPOs can take upto a year before they are cleared for listing. Also, there is far less information and disclosures available about their financials, fundamentals and performance to investors for making an informed decision, as compared to mainboard stocks. Then there’s the issue of illiquidity. Once purchased, you might find it hard to sell off your SME stocks, since they are not traded as frequently in the market, which means lower liquidity. Trivesh D, COO, Tradejini explains that liquidity is a major concern for such stocks. “These stocks typically have a smaller free float, and are traded in lots, which can lead to volatility and sharp price swings. This means it can be challenging for investors to buy or sell shares without significantly impacting prices. Additionally, speculative trading practices, like 'pump-and-dump' schemes, can inflate stock prices, leaving retail investors vulnerable to sudden drops”. Recently, SME IPOs have gained notoriety for price manipulation via showing fictitious sales and revenue in their books of accounts, selling of promoter holdings at inflated prices, and being the facade for many infamous <keyword id="10663340" type="General" weightage="20" keywordseo="Pump-and-Dump" source="Orion">pump and dump</keyword> schemes. This is where select people create frenzy, or mass euphoria over a particular stock or company, causing its prices to soar, and then dumping them, or selling their shares at this massive price to make a killing! Infact, it's not just the promoters, but also the investment banks floating these IPOs. At present, SEBI is investigating around 6 investment banks which have allegedly charged SMEs a staggering 15% of funds raised via IPOs as fee, as opposed to the standard 1-3%. In March 2024, SEBI chairperson Madhabi Puri Buch had also highlighted witnessing signs of manipulation in the SME space. “We do see signs of manipulation in the SME segment. We are able to see certain patterns.” Buch had observed back then. Adds Kresha Gupta, Founder &amp; Director, StepTrade Share Services, “Investing in SME IPO comes with significant risks, despite their impressive returns in recent years. Limited participation from institutional investors and public in some SME IPOs also mean that those companies may lack the support and stability that comes with larger-scale investments” “Additionally, many SMEs may not have strong fundamentals to justify their valuations. High P/E ratios can be misleading, and while some IPOs have delivered impressive returns, they often come with significant volatility, continues D of Tradejini. <h2>So, should I stay away? </h2>Yes, and No. Yes, if you don't want to do your homework of researching the company thoroughly beforehand. Anand K. Rathi, Co-Founder of MIRA Money suggests asking a couple of questions before investing your hard earned money: <ul><li>What is the company's financial performance over the past 3-4 years?</li><li>What is the company's governance structure?</li><li>Is the financial success driven by the IPO, or is it a result of consistent performance?</li><li>Does the company have what it takes to scale its operations to the next level?</li><li>Are the company’s promoters trustworthy, capable and experienced?</li><li>What is the level of participation by large, institutional investors?</li></ul> But staying away completely? Not necessary. Gupta adds that retail investors, in particular, should avoid viewing SME IPOs as quick money-makers based on their short-term performance, as this can certainly lead to poor investment decisions. “To mitigate risks, investors should always focus on long-term fundamentals rather than just short-term price movements. Key indicators include the participation of institutional investors like DIIs and FIIs. This often signals confidence in the stock”, she continues. A red flag you should look out for is if a company is only offering OFS, or Offer for Sale. This can indicate early investors looking to exit, potentially signaling weaker future growth. That's why it is better to look for companies which are raising capital for expansion purposes. This is a sign of healthy business growth prospects and improving fundamentals. In conclusion, backing the underdog, or SMEs, is not a bad proposition, but not without its risks. Investing in SME IPOs is like riding a unicorn—but you don't know whether you're riding it to rags or riches! So, take your pick.

Why investing in SME IPOs should not be on top of your adventure to-do list!

<div type="image" title="In 2024, India has seen around $12.2 billion worth of IPOs, including mainboard and SMEs" msid="113878163" hostid="261" sizebytes="45300" caption="&amp;lt;p&amp;gt;In 2024, India has seen around $12.2 billion worth of IPOs, including mainboard and SMEs&amp;lt;/p&amp;gt;"></div> Missing some action, adrenaline rush, and thrill in your life? Are the good old, albeit mundane money investment avenues like mutual funds and fixed deposits not making the cut for you? Want to experience a heart-pounding, financial rollercoaster that will constantly keep you and your portfolio on tenterhooks? Well then, welcome to the world of initial public offers (IPOs), especially those brought to you by SMEs, or <keyword id="6375845" type="General" weightage="20" keywordseo="Small-and-Medium-Enterprises" source="Orion">small and medium enterprises</keyword>. Truth be told, <keyword id="19938687" type="General" weightage="20" keywordseo="sme" source="keywords">SME</keyword> IPOs have been all over the bourses this year. So far, 2024 has seen 206 SMEs debuting on both BSE and NSE, out of which 146 listed in gains and 46 listed in losses. Odds seem good, right? In contrast, the year has only seen 63 IPOs from the elder brother i.e. mainboard, only 48 of which managed to post any listing gains. And getting an allotment has also been a major uncertainty, given the unusually high demand this year. <h2 style="margin-bottom: 0.7em; line-height: 1.3; color: rgb(0, 0, 0); font-size: 24px; background: 0px 0px; text-rendering: optimizelegibility;">So, what's an <keyword id="5559702" type="General" weightage="100" keywordseo="SME-IPO" source="Orion">SME IPO</keyword>, you ask?</h2>Think of a mainboard company as Shah Rukh or Salman Khan—well-established, financially stable, strong legacy of profitability, and fairly well-known. On the other hand, SMEs are your Prateek Gandhi (Harshad Mehta, Scam 1992), Siddhant Chaturvedi (MC Sher, Gully Boy) or Avinash Tiwary (Majnu, Laila Majnu). While they are doing super well, they are yet to make it big like the Khans. They’re currently underdogs, lesser known, but who knows? They can be the next big thing in the future! And SME IPOs are getting a stellar reception. In 2023, 182 such IPOs had raised a substantial Rs 4,967 crore. In 2024, more than 200 companies have already raised over Rs 7,500 crore, and we have four months to go. This, with one quarter of the year still remaining. <div type="image" title="In 2024, India leads IPO activity in the Asia-Pacific region" height="900" width="1200" msid="113875643" hostid="261" caption="&amp;lt;p&amp;gt;In 2024, India leads IPO activity in the Asia-Pacific region&amp;lt;/p&amp;gt;"></div> But what does it take for a company to be classified as a small enterprise? The company has to have an annual turnover/income of up to Rs 50 crore, and for a medium enterprise to be called so, its annual income has to be up to Rs 250 crore. When such companies go public, in a bid to raise funds from investors and expand their operations, they launch an <keyword id="19898327" type="General" weightage="20" keywordseo="ipo" source="keywords">IPO</keyword>, but not on the main exchange, but separately, on NSE’s Emerge and BSE’s SME platform. As of September 2024, <keyword id="4484133" type="General" weightage="20" keywordseo="NSE-Emerge" source="Orion">NSE Emerge</keyword> has 147 listed participants, while <keyword id="1885131" type="General" weightage="20" keywordseo="BSE-SME" source="Orion">BSE SME</keyword> has 155 market makers. Mounting an SME’s IPO is comparatively less stringent than their mainboard counterparts, as far as regulations are concerned since their DRHPs (draft red herring prospectus) are not filed with SEBI. So, wouldn’t a lenient treatment make them inherently riskier? Why are they so appealing, you ask? <a href="https://www.businessinsider.in/stock-market/news/a-company-with-8-employees-looking-to-raise-12-crore-ended-up-getting-applications-worth-over-4700-crore/articleshow/112824522.cms">Delhi firm with just 8 employees seeks ₹12 crore via IPO, gets ₹4,700 crore worth of investor applications!</a> Well, for one, some of them have delivered exceptional returns—we’re talking 100%, 200%. Consider this—Owais Metal and Mineral Processing, which launched its IPO in February this year, delivered a whopping listing gain of 201%. Another SME, Maxposure, whose IPO was out in January 2024, had earned its investors listing gains worth 317.40%! Apparently, higher risks also mean higher returns, and also super high investment. Most SME IPOs need a minimum investment of Rs 1,00,000 or more, as opposed to mainboard IPOs, where you can buy one lot of shares for anywhere between Rs 14,000-15,000. Even the minimum trading lot size for SME shares is about 10,000. In short, you’d have to potentially empty your pockets to invest in an SME IPO. And still, there’s no guarantee that the listing will fill your wallets. For all you know, your pockets before and after the IPO is listed might stay the same - EMPTY! There's also the question of whether or not these SMEs are able to maintain their listing day mojo, or do they just fizzle out thereafter? Data from Prime Database highlights more instances of the latter. As of August 2024, about 166 SME IPOs had made it to the exchanges. Around 72 of them, or close to 50%, could not sustain their momentum going ahead, and were trading below their listing day prices. Consider this. The post listing gains of Medicamen Organics, whose IPO came out in June 2024, earned its investors massive listing gains of over 300%, by listing at Rs 137.85, significantly higher than its price issue price, which was set between Rs 32-34. But as of October 1, 2024, the stock was trading at Rs 64.2. Talk about falls. Additionally, risks of pump-and-dump, and illiquidity, among others makes SME IPOs dangerous See, you're largely venturing into unknown, pitch-dark territories, without much light to guide you. For starters, SME IPOs face less scrutiny from market watchdog SEBI. This also means they are able to list quickly, just 3-4 months. On the other hand, mainboard IPOs can take upto a year before they are cleared for listing. Also, there is far less information and disclosures available about their financials, fundamentals and performance to investors for making an informed decision, as compared to mainboard stocks. Then there’s the issue of illiquidity. Once purchased, you might find it hard to sell off your SME stocks, since they are not traded as frequently in the market, which means lower liquidity. Trivesh D, COO, Tradejini explains that liquidity is a major concern for such stocks. “These stocks typically have a smaller free float, and are traded in lots, which can lead to volatility and sharp price swings. This means it can be challenging for investors to buy or sell shares without significantly impacting prices. Additionally, speculative trading practices, like 'pump-and-dump' schemes, can inflate stock prices, leaving retail investors vulnerable to sudden drops”. Recently, SME IPOs have gained notoriety for price manipulation via showing fictitious sales and revenue in their books of accounts, selling of promoter holdings at inflated prices, and being the facade for many infamous pump and dump schemes. This is where select people create frenzy, or mass euphoria over a particular stock or company, causing its prices to soar, and then dumping them, or selling their shares at this massive price to make a killing! Infact, it's not just the promoters, but also the investment banks floating these IPOs. At present, SEBI is investigating around 6 investment banks which have allegedly charged SMEs a staggering 15% of funds raised via IPOs as fee, as opposed to the standard 1-3%. In March 2024, SEBI chairperson Madhabi Puri Buch had also highlighted witnessing signs of manipulation in the SME space. “We do see signs of manipulation in the SME segment. We are able to see certain patterns.” Buch had observed back then. Adds Kresha Gupta, Founder &amp; Director, StepTrade Share Services, “Investing in SME IPO comes with significant risks, despite their impressive returns in recent years. Limited participation from institutional investors and public in some SME IPOs also mean that those companies may lack the support and stability that comes with larger-scale investments” “Additionally, many SMEs may not have strong fundamentals to justify their valuations. High P/E ratios can be misleading, and while some IPOs have delivered impressive returns, they often come with significant volatility, continues D of Tradejini. <h2 style="box-sizing: border-box; border: 0px; outline: 0px; padding: 0px; margin: 0px 0px 0.7em; font-family: &quot;Open Sans&quot;, sans-serif; font-weight: 700; line-height: 1.3; color: rgb(0, 0, 0); font-size: 24px; list-style: none; background: 0px 0px; text-rendering: optimizelegibility; text-transform: none; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;">So, should I stay away?</h2>Yes, and No. Yes, if you don't want to do your homework of researching the company thoroughly beforehand. Anand K. Rathi, Co-Founder of MIRA Money suggests asking a couple of questions before investing your hard earned money: <ul><li>What is the company's financial performance over the past 3-4 years?</li><li>What is the company's governance structure?</li><li>Is the financial success driven by the IPO, or is it a result of consistent performance?</li><li>Does the company have what it takes to scale its operations to the next level?</li><li>Are the company’s promoters trustworthy, capable and experienced?</li><li>What is the level of participation by large, institutional investors?</li></ul> But staying away completely? Not necessary. Gupta adds that retail investors, in particular, should avoid viewing SME IPOs as quick money-makers based on their short-term performance, as this can certainly lead to poor investment decisions. “To mitigate risks, investors should always focus on long-term fundamentals rather than just short-term price movements. Key indicators include the participation of institutional investors like DIIs and FIIs. This often signals confidence in the stock”, she continues. A red flag you should look out for is if a company is only offering OFS, or Offer for Sale. This can indicate early investors looking to exit, potentially signaling weaker future growth. That's why it is better to look for companies which are raising capital for expansion purposes. This is a sign of healthy business growth prospects and improving fundamentals. In conclusion, backing the underdog, or SMEs, is not a bad proposition, but not without its risks. Investing in SME IPOs is like riding a unicorn—but you don't know whether you're riding it to rags or riches! So, take your pick.

SIMPLY PUT: Why investing in SME IPOs should not be on top of your adventure to-do list!

Indian companies across multiple sectors have reported disappointing results in the second quarter of fiscal year 2025, notes a new JM Financials report. Consequently, their poor performance has triggered stock price corrections for affected companies. The brunt of this weaker than expected earnings was largely borne by consumer centric sectors like FMCG (fast moving consumer goods), retail, and auto, which slacked largely due to dampened urban demand. For instance, India's largest automaker, Maruti Suzuki, reported a 5% YoY decline in its total domestic passenger vehicle wholesales, largely on the back of pent-up inventory. Similarly, Honda reported a staggering 23% YoY dip in its total sales during October 2024. A recent report by Bernstein noted that around 48% of the companies listed on the NSE100 index missed their earnings estimate for Q2FY25, the highest since March 2020. Most companies have mentioned deteriorated domestic demand, urban slowing, macroeconomic risk, and margin pressures as the main reasons behind the dip. "The quarter's earnings have made investors nervous," noted the JM Financials report. The challenging environment stems from multiple factors: softening consumer demand, rising input costs, and companies' limited ability to increase prices. Moreover, this is not limited to just one quarter. Companies have been reporting weak, single-digit earnings growth for the last six consecutive quarters. Data from India Data Hub also suggests that corporate profits of listed companies plunged by as much as 3.4% during the quarter ended September 30, 2024. This is in stark contrast to the year-ago period, where they had shot up by over 40% The oil and gas sector had a difficult quarter, with refiners hit by weak margins and city gas distributors struggling with higher input costs. Financial institutions showed mixed results. While government-owned banks reported strong numbers, microfinance institutions and some private lenders faced massive difficulties with their unsecured loans. Most notable amongst this was the case of IndusInd Bank, which saw its net profits dip by 40% amidst burgeoning provisions, which climbed 87% to Rs 1,820 crore in Q2, as against Rs 974 crore reported in the year-ago period. <h2>Markets head southwards</h2>The selling trend by FPIs has dragged down the major Indian indices, the Nifty 50 and Sensex, both of which have dropped by around 8% since the beginning of this selling spree in October. According to National Securities Depository Ltd. (NSDL) data, FPIs offloaded equities worth a significant Rs 19,994 crore in just the first five trading sessions of November last week. The impact is clearly visible on Indian stock markets. Data suggests that while every sector in October closed the month in red, auto, oil and gas, and consumer durables were the most badly hit, each declining by as much as 10% during the month. Another indicator underlining the inherent weakness of the market was that the month saw only 242 stocks hit their 52-week high, significantly below the usual monthly average of 310.

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FII stake in Indian equities dips to a 12-year low

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SIMPLY PUT: Why investing in SME IPOs should not be on top of your adventure to-do list!

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