Sme Mainboard Migration Norms Tightened: What Stock Market Analysts Say

The National Stock Exchange (NSE) has revised nan eligibility criteria for nan companies who tin migrate to nan mainboard from its SME platform. The database of revised norms see measures for illustration mean marketplace capitalization of much than Rs 100 crore, minimum barroom of revenue, profitability for 2 years among others.

These stricter norms person been lashed retired by nan starring speech connected nan heels of nan Gensol Engineering fiasco, which was migrated to nan mainboard successful 2023. The banal delivered spectacular returns since its IPO successful October 2019, but has wiped retired astir 92 per cent of investors' wealthiness amid nan alleged financial misconduct.

The mean marketplace capitalization request has been raised from Rs 25 crore to Rs 100 crore, limiting eligibility to much sizable SMEs. Under nan caller norms, smaller companies must person a minimum gross of Rs 100 crore successful nan preceding financial twelvemonth and study affirmative operating profits successful astatine slightest 2 of nan past 3 years.

Also, promoters must clasp astatine slightest 20 per cent of nan company’s equity astatine nan clip of exertion and clasp astatine slightest 50 per cent of their original holding from nan SME listing date. Also, they must beryllium listed connected nan SME level for astatine slightest 3 years and person a minimum of 500 nationalist shareholders astatine nan clip of application, to guarantee only comparatively seasoned and wide held firms qualify.

Applicants must person a cleanable regulatory record—no insolvency proceedings, winding-up petitions, SEBI debarments, worldly regulatory actions, aliases unresolved investor complaints. SMEs emerging from surveillance aliases trade-to-trade restrictions must observe a 60- time cooling-off play earlier applying for migration are immoderate of nan different norms.

Kranthi Bathini, Director of Equity Strategy astatine Wealthmills Securities said that nan regulator has laid retired stringent norms station nan caller autumn retired of a SME institution from EV space, which was migrated to nan mainboard. "This action is aimed to safeguard nan liking of gullible unit investors, who often autumn prey aft an astounding emergence successful SME companies and their migration to mainboard," he said.

Echoing nan akin notion, Narinder Wadhwa, MD and CEO astatine SKI Capital Services said that nan revised model follows caller regulatory tightening by SEBI, peculiarly astir merchant bankers and IPOs for smaller firms.

"It besides comes successful consequence to concerns complete financial misconduct by definite companies that had antecedently migrated to nan main board. The caller rules correspond a important displacement toward much stringent norms, designed to select only reliable and mature SMEs for main committee listing," he said.

Post its migration to nan mainboard, shares of Gensol Engineering soared to astir 2,392.05 per stock successful October 2023. The institution launched its Rs 17.93 crore IPO successful September 2019 trading its shares for Rs 83 apiece. The institution gave 2 prize issues successful 1:3 ratio (in October 2021) and 2:1 ratio (in October 2023).

Adjusting these firm actions, shares of Gensol Engineering soared 6,550 per cent to Rs 1,330 successful February 2024. The banal has collapsed astir 95 per cent from its all-time peak. The full marketplace capitalization of nan institution has slipped beneath Rs 350 crore from Rs 5,000 crore astatine its peak.

Every clip nan rules are tightened, nan level of scrutiny connected investments increases, yet helping to place strong, high-quality companies, said Kresha Gupta, Founder & Director astatine Steptrade Share Services. The revised criterion shall guarantee that only fundamentally sound companies make it to nan main board, she said.

"These measures fortify a company’s instauration and heighten nan integrity of nan superior markets successful nan eyes of investors. While it whitethorn go much challenging for companies to raise superior aliases execute higher valuations, it builds investor spot successful nan agelong term," Gupta added.