The Hindu Business Line : BSE-Indonext: Many mid-cap firms feel entry norms stringent

THE BSE-Indonext, the much talked about separate trading platform for small- and mid-cap companies scheduled to take off on Friday from the stable of Bombay Stock Exchange (BSE), may find very few scrips that are currently listed exclusively on the regional stock exchanges (RSEs).

Though the market regulator expects that all the RSEs would join Indonext and the new trading platform would be more successful than OTCEI, the market observers, however, are of the view that the number of new scrips participating in the Indonext from the RSEs would be highly negligible owing to the stringent eligibility criteria prescribed.

Viewing that investors of small- and mid-cap companies exclusively listed on the RSEs were not able to find an exit route and realise fair market value of their investments since there has been no trading activity on the RSEs, the market regulator came out with the idea of BSE-Indonext .

However, several companies exclusively listed on the RSEs are finding it difficult to secure a place on the BSE-Indonext because of stringent entry norms, especially with regard to asset base. According to the prescribed criteria, the company should have net tangible assets of at least Rs 3 crore in each of the preceding three full years and have a track record of distributable profits for at least three out of immediately preceding five years, which excludes non-recurring income.

The minimum turnover, excluding exceptional items and other income, should be Rs 5 crore in each of the previous three years.

Representatives of several small- and mid-cap companies contacted by Business Line were pessimistic of their entry onto the BSE-Indonext as most of them do not meet the criteria prescribed in respect with assets, track record and turnover, except for paid-up capital.

However, providing a different perspective to the issue, the Hyderabad Stock Exchange (HSE) Executive Director, Mr S. Sarveswar Reddy, said the BSE-Indonext would provide a good beginning for a sizeable number of companies.

"It allows investors an exit route, companies raise fresh resources from the capital market, revive the vast network of members of RSEs and generate liquidity in all the scrips listed on the RSEs over a period. At least 400 scrips of RSEs currently listed on the BSE with a paid-up capital of up to Rs 20 crore will be shifted to the S-segment (Indonext)," Mr Reddy said.

Acknowledging the views of many companies that the criteria appears stringent, Mr Reddy said, it was basically aimed at allowing the quality companies with good track record and management background so as to protect the investors' interests.

He said the regulator might look into the eligibility norms once again and relax them as and when required.

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