41 multibaggers, 80% win rate! SME IPOs spreading FOMO among bluechip warriors

Small is beautiful and micro marvellous. This appears to be the new guru mantra giving mind-blowing returns to investors. While the gravity-defying rally in smallcap and midcap stocks is causing heartburn to bluechip investors, the real money is being made in the much smaller and below-the-radar SME IPO market.

Out of the 105 SME IPOs that got listed on Dalal Street so far in the calendar year 2023, a majority 84 have given positive returns. This translates into a win rate of 80%, which means four out of every five SME IPOs made money.

Out of them, 41 have turned multibaggers with the highest returns going up to 357%, according to PRIME Database.

The spectacular bull run is making many bluechip investors uneasy who are now tempted to shift a part of their portfolios to chart-busting minion stocks.

Last week, Basilic Fly Studio IPO, received bids worth a whopping Rs 14,000 crore against its modest issue size of Rs 66 crore and this week Morgan Stanley picked a stake in Rs 43 crore SME IPO Chavda Infra.

Jaw-dropping returns in SME IPOs
Krishca Strapping Solutions IPO, which listed on May 26, has rallied 357% from IPO offer price. Other top gainers include Exhicon Events Media, VASA Denticity, Remus Pharma, MACFOS, Kaka Industries, Bright Outdoor Media and Oriana Power.SunGarner Energies, which got listed on NSE Emerge platform on August 31, ended its first day on the stock exchange with a jaw-dropping return of 216%.

Should you munch on SME stocks?
Hem Securities’ India Rising SME Stars, which invests in SME and smallcap stocks, was the best performing PMS fund last month and delivered over 17% return in just a month.

“In the recent past SMEs have performed really well and many companies are trading at expensive valuations, investors should maintain a cautionary stance while picking stocks in this space. We strongly believe that micro-cap space is a deep ocean and there are a lot of good companies still available at reasonable valuations with strong growth potential,” Mohit Nigam, who manages the SME fund, said.

He suggests that SME space is suitable for investors with high risk tolerance and an investment horizon of over five years.

While describing the SME space as interesting and exciting, Dalal Street veteran Sunil Singhania is of the belief that the rally isn’t exactly based on fundamentals and investors need to do their due diligence properly.

“It is mixed. Some good companies are coming up. We are, in one of our smaller funds, avid investors and the experience has been pretty decent,” he said.

Mumbai-based value investor Vijay Kedia, who made a fortune by betting on small and midcap stocks, says the frenzy in the SME market is nothing but euphoria and FOMO.

“People are still fascinated about penny stocks, cheap stocks and ‘chhota’ price stocks. They are treating SME stocks like penny stocks but it isn’t true,” he said, while warning that valuations are quite high and some day this euphoria will cool down.

The lure of doubling money on listing day is making investors ignore the lack of liquidity which can close all exit doors.

Given the thriving startup ecosystem and innovative business models in play, it is tough to ignore these little ninjas.

“First and foremost, dig into the nitty-gritty details of the company. Study their business model, the industry they operate in, their financial health, the competence of their management team, and their growth prospects. Getting the fundamentals right is paramount,” Shrey Jain, founder and CEO, SAS Online, said.

Besides, one must also assess the company’s valuation, compare it to industry peers and then scrutinize how the company intends to use the funds raised through the IPO.

“In a nutshell, investing in SME IPOs can be a lucrative endeavor, but it’s not without its fair share of risks. The key is to do your own research diligently and make an informed decision before taking the plunge,” Jain said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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