SME Stocks Are Creating Wealth!

We have seen in the past one year that several SME stocks have been catching investors' attention. Is it the right time to consider such stocks? Yogesh Supekar shares a fresh perspective on SME stocks and suggests how one can deal with them profitably while also highlighting the challenges that lie therein

- 

If you believe in the adage 'small is beautiful' as applied to the equity market, you must be talking about micro-cap companies. Micro-cap investing is luring investors with high-risk appetite with unmatched returns. The downside in micro-caps can be huge and at times there is lack of liquidity in the stocks, which essentially means that it may be difficult to liquidate the position. Now that is something called 'known risk' while investing in micro-cap companies. Investors who participate in equity markets are usually believed to understand the risks involved in investing.

The question is whether all the investors who participate in illiquid stocks accurately understand the risks involved.

Investors tend to focus on the return aspect more than the risks and hence end up getting disappointed with their investing experience. It is important to be an informed investor. SME investing, like micro-cap investing, has its own challenges and risk-reward equation. We have seen the action getting thicker, louder and broader as an increasing number of participants are getting active in the SME investing game. Recently, we have seen the market capitalisation for the SME stocks cross *60,000 crore on the BSE SME platform. This is quite a big achievement for the platform that was flagged off only in 2012.

The total number of stocks on the BSE SME platform as of today is 405. So far, 247 companies are listed on NSE Emerge and the total market capitalisation is about 35,375 crore for SME stocks listed on this platform. There are some unique promising stories in the SME space and then there are some boring and dull stories too that have destroyed wealth for investors. The perception is that very few people make money investing in equity markets and a lesser percentage of investors actually make money investing in SME stocks. Unless the rewards outweigh the risks, the investing theme will not work in the long term.