Of late, the number of companies migrating from SME platform of BSE and the National Stock Exchange (NSE) to the main platform has been on the rise. On the one hand, hoards of new companies are entering the SME platforms for fundraising, and on the other, firms that have grown up in a small pond are not afraid to make a giant leap to enter the mainstream.

Year 2022 saw 26 companies migrating to main-board NSE platform, while over 30 companies entered the big board in 2021. Each year, the number has been growing.

Overall, nearly 120 companies have migrated to the main board on the NSE and 158 from BSE-SME to the BSE. Currently, there are 150 companies trading in the NSE-SME and 408 on the BSE-SME.

Financial inclusion

In 2012, BSE and NSE launched SME platform to enable financial inclusion of the unorganised sector scattered across India, to make it a regulated and organised sector. SME exchanges assist these small and medium enterprises not only in raising capital, but also to blossom into full-fledged companies.

While SMEs help entrepreneurs raise equity capital for growth and expansion in a cost-effective manner, they also provide opportunities to investors to identify good companies at an early stage.

Migration methods

SME-listed companies may migrate to main board by two methods. One, compulsory — exchanges shift the stock to main board if issue capital exceeds ₹25 crore; and voluntary — companies can opt themselves in even if the issue capital rules below ₹25 crore.

Voluntary migration, in fact, shows the confidence of promoters in meeting strict regulatory requirements that include corporate disclosures such as quarterly results, shareholding pattern, M&As, etc. within a stipulated time.

No doubt, migration to main board enhances liquidity to stock, as there is no pre-condition of trading in lots like in SME platform. So, investors can buy and sell even one quantity like other normal stocks.

Some of the stocks Bajaj Health Care and Creative Newtech (erstwhile Creative Peripherals and Distribution Ltd) that migrated to main board gave strong returns within a few years.

However, that does not mean investors should add these stocks blindly.

First, these stocks tend to perform well during bull market and will succumb during the bear cycle.

For example, the stock of Veto Switchgears — the first to migrate to main board in 2015 — trebled within three years to hit a high ₹250 in 2017, but dipped below ₹30 in March 2020 amid Covid carnage. However, it recouped sharply from there to rule currently at around ₹120. There are many such examples.

So, it is prudent to do proper research before adding these stocks to your portfolio.

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