Top SME IPOs based on returns: Why holding smaller stocks for a longer duration makes sense

SME IPOs: Investors have increasingly been showing interest in the initial public offerings (IPOs) of small and medium enterprises (SMEs) over the last two years due to their potential for significant returns in a short span. Despite the minimum investment requirement of Rs 1 lakh for SME IPO participation, which exceeds that of main board IPOs typically set around Rs 15,000, investor enthusiasm remains high.
An analysis by ETIG of SME issues launched since the start of 2021, when the SME IPO trend gained momentum, reveals that contrary to popular belief, most listed SMEs did not yield substantial listing gains.
However, it’s interesting to note that over a one-year period, many of these SMEs managed to not only retain but also surpass their initial listing gains, thereby indicating that a long-term investment approach may work for Small and Medium Enterprises.

A study of 378 SME IPOs listed on NSE and BSE SME boards since January 2021 showed that 152, or 40%, recorded listing gains of 25% or more, while 105, or 28%, saw gains of 50% or higher. Additionally, 10%, or 39 issues, experienced gains exceeding 100%, while 46%, or 175 companies, earned less than 10% in listing returns.
Further analysis revealed that 54% of the stocks demonstrated current returns over the offer price surpassing the listing gains. Among the 181 companies listed for at least one year, 61% delivered one-year returns surpassing their listing gains. Additionally, nearly half of these stocks (86 out of 181) earned returns of 50% or more, while 37% (68 out of 181) gained twice or more within the first year of listing.
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These findings suggest that similar to main board IPOs, investing in promising SMEs for a longer period can be beneficial for investors, the financial daily’s analysis said.