This article has been written by Debojit Das.

It has been published by Rachit Garg.


Stock market investing offers a wide scope of choices. It offers a bigger number of conceivable outcomes than trading shares in the secondary market. There is a wide range of choices accessible, aside from the notable stock exchanges- that are, trading shares of listed companies. There is the Initial Public Offer (IPO) or primary market, the segment of derivatives and as of late the most recent Small Medium Enterprises (SME) exchange. For sure and confident investors, who are searching for fresher and more beneficial choices, the SME exchange can end up being a predominant stage. In this article, we survey and review the SME Stock Exchange in India, the requirement for an SME Exchange, the system for trading on SME Exchange and significant trading rules and guidelines. 

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Small and medium enterprises’ features

Companies typically list their shares in the primary market on the exchange through an Initial Public Offer (IPO). This generally incorporates enormous corporate or big companies. Nevertheless, a few small and medium ventures have a limit with respect to giving better or superior returns for investors. Further, certain investors who have prevalent information on surveying the risk of an SME are likewise keen on putting resources or investing in SMEs that match their risk craving. To coordinate such investors with investors, both National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) have made separate SME stock exchanges in India. The BSE alludes to its SME exchange, while the NSE exchange is termed ‘Emerge’. 

What is a SME exchange

Have you at any point pondered about putting investments into new companies or start-ups, all the more explicitly a stock that will give you manifold returns? Here, we are not looking at putting investments to private-equity funds or venture capital, which by and large put investments into some beginning phase organizations or rather one, may say early-stage companies out of the conviction that one of them will give dynamic returns. All things being equal, our attention is on organizations that are recorded or listed in a SME Exchange.

An organization needs to meet a few standards or criteria set by the Securities and Exchange Board of India (SEBI) to get its shares listed on a customary exchange or say on a regular stock exchange. These incorporate having an operating profit of Rs 15 crores over the most recent three years, the base or the minimum post-issue market capital of at least Rs 25 crores, and so on. Be that as it may, throughout some stretch of time, the need to permit significantly smaller/early-stage organizations to fund-raise from general society or the public through the capital market was felt. Subsequently, such organizations, alluded to as SMEs (small and medium enterprises) were permitted to bring capital up in a different trading platform, wherein the entry hindrances would be lower. This exchange or trading platform is called an SME exchange.

Oddly, it’s not anything but a different trade like the BSE or NSE. All things considered, it is a different trading platform from the main stock exchange, where the shares of SMEs are exchanged. Along these lines, the name, SME trade, is somewhat deceptive.

Since the BSE and NSE operate SME trades (called BSE SME and NSE Emerge, separately), investors who can transact stocks in customary or regular exchanges can consequently buy shares in SME exchanges.

Chapter XB of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations defined the term SME Exchange as a trading platform of a recognised stock exchange or a dedicated exchange allowed by SEBI to list the securities issued in accordance with Chapter XA of SEBI (ICDR) Regulations and this separates the Main Board (which is, in turn, is defined as a recognised stock exchange that has nationwide terminals of trading, other than SME exchange).

The Indian Small and Medium Enterprises (SME) area has continually gone about as the shield for the Indian economy by giving it adaptability to forestall worldwide financial shocks and afflictions. It has arisen as a profoundly energetic and dynamic area of the Indian economy throughout the last five decades.

SMEs not just assume a vital part in giving huge work openings at relatively lower capital expense than enormous ventures yet additionally help in the industrialization of rural regions. The Indian MSME area is the foundation of the national economic structure as the Sector comprises 36 million units and starting today, it gives work to a worth mentioning of 80 million people. The Sector, in more than 6,000 items, contributes around 8% to GDP besides  45% to the complete manufacturing output and 40% to the exports from the country.

The Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006 was accommodated for working with the advancement and improvement along with upgrading the gravity concerning competitiveness of MSMEs (normally alluded to as SMEs) and for the connected issues. Considering the job of SMEs in country-building and their potential as far as producing business and employment is just as encouraging development and venture, it was basic and prudential that a fundamentally empowering climate ought to be accommodated for these enterprises to thrive.

The Prime Minister’s Task Force (Jan. 2010) had suggested the setting up of a devoted Stock Exchange/Platform for SMEs. SEBI has additionally set out the guidelines for the administration of SME Platform. To this drive, the Bombay Stock Exchange and the National Stock Exchange have set up the BSE SME Platform and EMERGE individually. The Stock Exchanges are consistently running after making the stage generally reasonable for organizations to turn out to be huge from little by raising funds from the Capital Market.

Requirements of listing for SMEs

On the accounts of normal stock exchanges, there are huge numbers of companies listed. Nonetheless, the quantity of listings on the SME exchange is restricted because awareness is just expanding. Besides, the SME stock exchanges have limitations in entry, for example, positive net worth and cash flow for two years before the procedure of listing. Moreover, organizations, which had once applied for winding up or restructuring, are not admissible to list on the exchange. These limitations assist with shielding investors from extra risk and guarantee that listed SMEs are authentic.

Trading in SME stock exchanges

Trading on the SME Stock Exchanges is practically similar to trading on the BSE or NSE. It does not require any methodology. Some trading rules are nevertheless different. The SME exchange has a bigger size than a typical lot size – the least number of shares one can buy or sell in every transaction. One is not allowed to trade sums lower than rupees one lakh. Likewise, the lot size fluctuates as per the price of the stocks. For example, on the NSE Emerge, in the event that the stock price is found to be lower than Rs 14, then the lot size is 10,000. Nevertheless, in the event that the sock price is seen between Rs 120-Rs150, then the lot size is found to tumble to 1000. 

Likewise, shares in the SME trade can be traded either in the continuous market or in the call auction market. Like the typical money section or the normal cash segment, these shares fall into classifications like the ‘block trading window’, ‘rolling settlements’, ‘odd lot trading’ etc. Moreover, one can put both markets as well as limit orders very much like an ordinary trade. These can be cancelled and customised until the order is processed. When settled, the shares will be conveyed in T+2 days (transaction day +2 working days).

Benefits of listing on SME exchanges

There is no denying that SMEs assume an important part in the development of the economy both, as a contributor to the national income as well as job creators. This has been perceived by the economies across the world prompting the development of SME exchanges in different developed and developing economies. Listing on SME exchanges enjoys the following key benefits:-

  1. The first and foremost thing is that it gives admittance to capital by equity infusion which is an immediate development driver. The money raised is the company’s own and the company is at complete freedom to use it for any reason like diversification, expansion, procurement, acquisition or even advance or loan reimbursement, all of which prompts a good overall healthy balance sheet. These companies are well-positioned to raise capital in other ways when listed, including qualified institutional placements (QIP), preferential issues, right issues, and other global fundraising instruments, such as Foreign Currency Convertible Bonds (FCCBs), Global Depository Receipts (GDRs) and American Depository Receipts (ADRs). Financial Institutions and banks also like to extend finance to listed companies rather than against unlisted ones.
  2. Secondly, it at the same time gives a helpful exit route to stock option holding employees, private equity investors and other investors by giving liquidity to these shareholders and value maximization. Liquidity in shares additionally empowers the existing shareholders to trade in their own shares prompting better      valuation than through private transactions.
  3. Thirdly, a significant change directed by listing is great for administration or in common parlance to be said as good governance. Benefits gathered at the time of listing are immensely helpful as the organizations set them up for this occasion and furthermore over the lifetime of the organization. Governance and regulatory supervision controls as normal compliances become a piece of the organization’s everyday presence. Ideal revelation and proper disclosure of material data and information not only encourage further developed governance but also safeguards investors’ interest. 
  4. Fourthly, listing on an SME Exchange upgrades the distinguished character of these organizations, which would in some      way or the other be missing because of next to zero openness. As a listed entity, these organizations currently have a genuine platform to feature themselves, assisting them with managing their rivals and at the same time getting the chance to market themselves, resulting in setting out open doors for business. Listing prompts upgraded public awareness because of media inclusion and freely accessible data; thus concludes further credibility of these enterprises.
  5. Fifthly, the listed securities’ sale draws in short-term capital gains tax of just 15% and long-term capital gains of only 10%, making it tax proficient too, as against the sale of shares of a company which is not listed, which draws in the assessment of tax of 30%. Short-term capital gains and 20% long-term capital gains. 
  6. In conclusion, a striking component of listing on an SME Exchange is the benefits of flawlessly relocating to the main board i.e. the BSE or NSE. Assuming the paid-up capital of the organization surpasses Rs 10 crores and is up to Rs 25 crores, an organization might migrate to the main board.

Other benefits 

The federal government of India has initiated a range of schemes and measures to permit MSMEs for easier admittance to funds, to modernize the sector and make it more cut-throat in the worldwide market.

These contain schemes ensuring the quality of products, especially those intended for exports, technology up-gradation, incubation, credit-linked capital subsidy and UID-related schemes which make possible the ease of receiving a subsidy.

Some of the other concessions obtainable to the MSMEs are scheduled below:

  1. 50 percent subsidy on patent registration;
  2. Collateral-free loans from banks;
  3. Eligible for industrial promotion subsidy;
  4. 1 percent exemption on the interest rate on overdraft;
  5. Protection against delayed payments; 
  6. Concession on power utility bills;
  7. Reimbursement of ISO certification charges.

Benefits of tax for SMEs

Other than different advantages, both BSE and NSE SME Exchange additionally offer Tax Benefits to the SMEs getting recorded on their SME Platforms. The tax benefits of SME listing are listed below:

Capital gain tax applies when short-term unlisted shares are sold for up to 30%, whereas long-term capital gains are 10% without indexation and 20% with indexation.

However, when listed securities are sold in the short term then the capital gain tax of 15% is attracted. Moreover, there is no long-term capital gain tax provided it has been under the purview of Securities Transaction Tax (STT). This makes it apparent that the listing of shares on SMEs is very attractive.

Capital Gain TaxListedUnlisted
Long Term Capital Gain TaxNIL20%
Short Term Capital Gain Tax15%30%

After China, India’s Micro, Small and Medium Enterprises (MSMEs) base is the biggest in the world. The sector is engaged in the manufacturing of over 6000 products and provides a wide range of services – ranging from traditional to hi-tech items. To attract greater Foreign Direct Investment (FDI) along with the Government of India’s “Make in India” initiative, the Indian MSME sector is pondered for rapid growth and coordination with major global value chains.

As per the official records, there are about 63.05 million micro industries, 0.33 million small and near about 5000 medium enterprises in the country. The State of Uttar Pradesh with a share of 14.20 percent of the total MSMEs stands out to have the largest number of estimated MSMEs. With a share of 14 percent, West Bengal comes as close to second place, followed by Maharashtra and Tamil Nadu with a share of eight percent.

The propagation of COVID-19 in India followed by the consequent lockdown has tormented national economic growth and financial pressure was put on businesses. To categorize MSMEs, the government has announced changes to the way it will make it happen in light of this.

Liquidity factor in SME exchange

Some alertness ought to be practised while trading on the SME exchanges in India. As a matter of first importance, investors should know that the risk factor is very high during the procedure of investing in small and medium-sized companies. While they are suitable for giving truly extraordinary returns they also have a higher than normal likelihood of being impacted. Henceforth, it is important to be well informed and       research well. Likewise, liquidity is lower in the exchanges of SMEs, when compared with the regular exchange. A few orders may not track down a matching buyer or seller immediately. Hence it is significant for investors in the SME stock exchange to do their well-researched homework or background check before investing.

How do you qualify as MSME in India

Based on investment and turnover, the definition of who qualifies as a micro, small and medium-sized enterprise (MSME) in India has changed. On May 13, 2020, when Finance Minister Nirmala Sitharaman announced the first tranche named COVID-19 special economic package, Atmanirbhar Bharat Abhiyan or Self-Reliant India, the new definition of micro, small and medium-sized enterprise (MSME) was deemed to be applicable for both manufacturing and services MSMEs in India. The new definition stretches the types of businesses that can now take the benefits of the MSME status and enjoy the related benefits.

(Image: Graphic Asia Briefing Ltd)

Revision to definition announced on May 13, 2020

  1. Organizations with investments up to INR 10 million (US$132,521) and turnover up to INR 50 million (US$662,715) are defined as micro units
  2. Organizations with investments up to INR 100 million (US$1.3 million), and turnover up to INR 500 million (US$6.62 million) are defined as small units
  3. Organizations can be eligible as medium-sized units if they have investments up to INR 200 million (US$2.6 million), and turnover up to INR 1 billion (US$13.24 million). 

NSE emerge versus BSE SME

Obviously, the qualification model, rather to say the eligibility criterion for BSE SME was loose when contrasted with NSE Emerge. Organizations which couldn’t conform to the NSE eligibility norms prefer listing on the BSE SME Platform. As of late, however, the BSE SME amended and redesigned its eligibility models, aligning them more with that of NSE Emerge. The current and updated standards and norms for the BSE SME listing are mentioned below:-


The Company shall be incorporated under the Companies Act, 1956.


  • Post Issue Paid up Capital

The post issue paid up capital of the company (face value) shall not be more than Rs. 25 crores.

  • Net-worth

Positive Net-worth

  • Tangible Assets

Net Tangible Assets should be Rs 1.5 Crore.

Track Record

The company or the partnership/proprietorship/LLP Firm or the firm which has been converted into the company should have a combined track record of at least 3 years.


In case it has not completed its operation for three years then the company/partnership/proprietorship/LLP should have been funded by Banks or financial institutions or Central or state government or the group company should be listed for at least two years either on the main board or SME board of the Exchange.

The company or the firm or the firm which has been converted into the company should have combined positive cash accruals (earnings before depreciation and tax) in any of the years out of the last three years and its net worth should be positive.

Other Requirements

  1. It is mandatory for a company to have a website.
  2. It is mandatory for the company to facilitate trading in demat securities and enter into an agreement with both depositories.
  3. There should not be any change in the promoters of the company in the preceding one year from the date of filing the application to BSE for listing under the SME segment.


A certificate from the applicant company/promoting companies stating the following:

a) “The Company has not been referred to the Board for Industrial and Financial Reconstruction (BIFR).”

Note: Cases, where the company is out of BIFR, are allowed.

b) There is no winding up petition against the company, which has been admitted by the court or a liquidator has not been appointed.

The new listing criteria are viable from July 12, 2018. While the goal behind the amendment is to work with the listing of development-oriented companies by making the distinguished system more rigid, the changing standards may perhaps prompt a lack of companies trying to list on the SME platforms.

Comparison of listing and compliance norms of SME exchanges with main board listing

S.N.ParticularSMEMain Board
1EligibilityMinimum Post Issue Paid up capital – Rs. 3 crores.
Minimum Post Issue Paid up capital – Rs. 10 crores
2Track Record of Distribution Profits

There must be distributable profits in 2 out of immediately preceding 3 years, OR
Net worth shall be Rs. 5 crores.

There must be profit in last year and also distributable profits in 3 out of immediately preceding 5 years.
3Underwriting100% underwritten issues. Merchant bankers are required to underwrite up to 15% on their own account.

Not Mandatory (Under 50% compulsory subscription to QIBs)
4Market MakingMerchant bankers are required to undertake market making for a period of 3 years.

Not Mandatory
5Timeline3-4 Months8-10  Months
6Need For SEBI Approval
SEBI approval is not required.
SEBI approval for DRPH is a preliminary condition for IPO.
7IPO Application Size
Rs.1,00,000/-Rs.5000 – Rs.7000
8IPO Timeframe3 to 4 months6 months onwards
9Reporting Requirements
Half yearlyQuarterly

Challenges faced by start-ups while listing on SME exchanges

The difficulties in the form of challenges faced by start-ups while listing on SME Exchanges might be ascribed to the battles of being a start-up itself. A log-jam in the growth and development of SMEs will consequently affect the popularity of an SME listing as a mainstay of fundraising. With numerous obstructions in their development, listing alone can’t guarantee a positive outcome. In addition, the shortfall of any advantage or incentive because of listing regularly neglects to motivate the start-ups to list. A large number of these start-ups often miss the mark on experience and technological capabilities to cruise through the entire listing process. These shortcomings are additionally extended because of the absence of human resources, readiness, non-compliances and an overall absence of awareness among the youthful business visionaries about the listing process. Restricted information on the stock markets and listing method is a significant hindrance for these start-ups who customarily have just relied upon banks for raising capital.

Regardless of measures set up by the regulator, the result is a long way from good. Most start-ups see the casual listing standards to be no less troublesome than listing on the main board and would prefer to stand by a couple of more years and get listed on the main board itself. The exclusions or exemptions accessible to the companies listed on the SME Exchanges might be minuscule and the feeling of dread towards punishments and penalties by virtue of non-compliance could make these companies less entrusted about listing.

Limited time programs or promotional programmes by the stock exchanges to build awareness among these start-ups could go quite far to conquer a significant number of the difficulties talked about above. Furthermore, stock exchanges need to advertise the SME platform as an item or product. This should be possible through appropriate advertisement, both on paper as well as through web-based gateways. At present, there is less media inclusion of SME issues when contrasted with the main board issuances. Scripts of the SME Exchanges usually don’t occupy space on numerous capital market sites. Giving motivating forces like incentives for listing may likewise help the development of these exchanges. 

The ideal method for advancing the SME Exchange is not simply by making awareness among the investors or by eliminating the listing hindrances but by making an information-related ecosystem for these new start-ups. The stock exchanges could enjoy interactive sessions with these companies which could assist with lessening obstacles and give a true impulse to the SME development story.

Regardless of the Micro, Small and Medium Enterprise (MSME) sector perseveringly going about as the rampart for the Indian Economic structure, MSMEs keep on lacking admittance to ideal and sufficient money as finance at a sensible expense, which is fundamental for its development. Reserve Bank of India through its Expert Committee Report (2019) had assessed that the overall credit gap in the MSME area or sector presently remains in the range of Rs 20-25 trillion. To connect this, SMEs have been raising funds by publicly listing their equity on stock exchanges devoted to SMEs.

SEBI ( Issue of Capital and Disclosure Requirements) Regulations, 2018, licenses an entity to make an IPO on devoted SME Exchanges on the offset chance that it’s post-issue paid-up capital is less than or equivalent to Rs 10 crores. In addition, an entity with a post-issue paid-up capital above Rs 10 crores yet underneath Rs 25 crores has the choice to list on the main board or the SME Exchange. This additionally implies that the admittance to SME Exchanges isn’t simply restricted to entities defined as MSMEs under the MSME Act, 2006, according to which the investment in the plant and machinery cannot surpass Rs 10 crores for an entity to be distinguished as an MSME. The companies which are listed on the SME Exchanges are allowed to move to the main board once they fulfil the listing requirements of the main board. Also, in the event that their post-issue paid-up capital surpasses Rs 25 crores, main board listing becomes obligatory.

Buzz behind SME listing

The World over, nations with complex and developing capital markets have exchanges committed to raising or better to say emerging companies: SGX-Catalist in Singapore, AIM in the UK, MOTHERS in Japan, TSX-Ventures in Canada and ChiNext in China. In India, previously we had the erstwhile OTCEI and INDONEXT as SME committed stock exchanges. In the year 2010, The Prime Minister’s Task Force suggested setting up a devoted stock exchange for SMEs, which was tried      by SEBI and at last, allowed the existing stock exchanges to set up SME explicit trading platforms having cross-country terminals.

In India, presently, two main exchanges (BSE and NSE) have devoted exchanges for SMEs. BSE, being the first to have an SME platform in the year 2012, currently has 310 companies listed on its ‘BSE-SME’. Of these, 71 companies have successfully exercised the option to move from BSE-SME to its main board. NSE emulated BSE’s example and laid out ‘Arise’ which has over 180 SMEs. Out of these, 22 companies have moved from EMERGE to NSE’s main board.

As of late, SME Exchanges have been humming or buzzing with activities in correlation with the main board. In the financial year 2018 and 2019, a total of 261 SMEs were listed, out of which 123 were listed on the main boards of BSE and NSE (IPOs, FPOs and OFS (SE)). As far as the market capitalization is concerned, the SMEs have had the option to raise Rs 6090 crores from the market starting around 2012 till September 30, 2019 (this incorporates IPOs and FPOs), with Rs 2255 crores and Rs 1620 crores having been raised in the financial year 2018 and 2019 separately alone. Nearer to the present time, out of five IPOs that hit the market on September 30, 2019, three are SME IPOs.

Ascend in listing

On one hand, obviously, SME listings have expanded manifold over the most recent couple of years. This can be generally ascribed to the straightforwardness, ease and advantages of SME listings. For example, the least allotted members required is 50 for SME listings, rather than 1000 imminent allotted members as mandated for the main board listing. This lower edge helps the IPO-bound SME to have a focused marketing approach and results in lower costs. Dissimilar to main board listings, the offer documents for the IPO-bound SME are verified by the exchange rather than by the securities market regulator, SEBI.

The long-term and short-term capital gains tax is easily pulled in for the sale of securities listed on SME exchanges and is significantly lower than the tax rate applicable for the sale of unlisted securities. Further, corporate governance norms under the LODR      Regulations, track record, alternate valuation methods and financial reporting requirements are additionally more relaxed for SME listings.

Creating awareness

On the other hand, while the public listing offers a horde of advantages to SMEs and their partners, SMEs have historically been shy of listing because of increased disclosure requirements and compliance loads when contrasted with unlisted companies. For example, Regulation 15(2) of the LODR Regulations furnishes relaxation in terms of compliance with certain corporate governance norms laid therein, for SME listings. The Companies Act, 2013 still applies to listed SMEs even with these relaxations. Hence, it becomes fundamental to sharpen the promoters of SMEs of the long-term sustainable growth advantages of SME listings and how a listing can help in the development of SMEs. 

MSME has unremittingly gone about as the sentinel for the Indian economy, giving it the versatility to avert worldwide economic shocks and afflictions. Likewise, the markets and the regulators have rested their confidence in this sector’s capabilities by time and again introducing administrative and regulatory changes to harness its development potential.


Since the launch, SME Exchanges so far have witnessed robust responses as is proved by the fact that more companies have been listed on SME Exchanges than on the Main Board. With growing confidence in the exchanges, it is expected that SMEs will attract greater interest from institutional and retail investors in the Public Issues on the SME Exchanges. In this segment, the best way to see growth would be done not only by removing the obstacles to sources of financing for SMEs but also by facilitating a knowledge ecosystem for such emerging companies. With these companies, regulators must also increase their interactions and work on removing some of the bottlenecks which will necessarily need to increase      investors and greater participation in the development story of these emerging enterprises. India’s position is at the cusp of growth and development. The much-needed impetus to the growth story of India is the capital flow toward emerging companies. Emerging enterprises have the zeal and the promise to take India on to this growth curve- as long as it is well supported by a growth ecosystem fuelled capital.



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