A man holds up Indian Ten rupee banknotes at a stall in Coonoor, Tamil Nadu. (Photographer: Dhiraj Singh/Bloomberg)

Investors Carnival: Why Utsav Shrivastava Thinks Backing SMEs Is A Good Idea

Exchanges for small and medium enterprises may not be popular, but they’re helping smaller firms grow, said Utsav Shrivastav.

The Pune-based investor said that all companies, including the Indian conglomerate Reliance Industries Ltd., start as SMEs or small and medium enterprises. “SME exchanges were started to allow people to invest in companies at early stage investing.”

The 260 companies listed on the S&P BSE Sensex’s SME platform have raised about Rs 2,519.62 crore. The 161 companies listed on NSE’s Emerge—the SME platform of the National Stock Exchange—have a market capitalisation of Rs 12,500 crore.

“Such platforms offer a brand name and publicity and helps companies in talent acquisition and global tie-ups,” Shrivastav, who’s a self-taught investor, said at the four-day Investors Carnival 2018 in Goa.

He, however, said that listing on SME exchanges can be a “double-edged sword”. Given the high mortality rate of companies in their infancy, Shrivastav said, 10 percent of SMEs listed today will become multi-baggers while 50 percent will vanish. “If a company survives the first three years, it typically lasts longer.”

Shrivastav gave insights into how he selects SMEs to invest in. “One needs to make sure they have an exit in mind. Businesses that need continuous capital expenditure to grow, they generally never give back money to shareholders,” he said. “One needs to avoid them.”

“I always ask promoters if I can sign a Rs 100-crore cheque and open the same company,” Shrivastav said. “If the answer is yes, I avoid the company.”

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