Markets await Union Budget

After Dr Manmohan Singh presented the path breaking budget in 1991, which opened the doors for globalisation, the Union Budget has always been awaited eagerly by the entire nation and more so by the markets. On March 16th, 2012,we will be witnessing the fourth budget to be presented by the UPA after it came to power for the second time in 2009. Though all eyes will be on the Union Budget, we feel that there is little to cheer about after the debacle of the Congress in UP as well as in other states. The much awaited reforms are likely to take a halt. The government may resort to a populist budget, and it will look forward to improving its image, keeping an eye on the 2014 general elections.

The effect of the election results were witnessed in the markets too. The Sensex and Nifty were down by five per cent each in the last fortnight. Almost all the broader indices ended the fortnight in the red.

On the global front, the situation still seems buoyant, and a clear picture is not visible. In the last fortnight, the US markets remained flat while its European counterparts witnessed a sell off and the FTSE ended the fortnight with a loss of around two per cent. 

Going forward, all eyes will be on the Union Budget, which will decide the course of the market going forward.

Exchange Happenings

The BSE is launching an SME platform on 13th March, 2012. This will provide a great opportunity to entrepreneurs who are looking at raising equity capital for their growth and expansion. It will also provide a good opportunity to investors to identify and invest in the good SMEs at an early stage. The initial response has been encouraging and many SMEs are looking forward to the BSE SME Exchange to be a solution to their problem of Capital rising.

The BSE SME Exchange was given approval by SEBI on 27th September, 2011. SMEs with paid up capital up to Rs 10 crore can come on the SME Exchange, in contrast to the paid up capital of Rs 10 crore or more for the Main Board. The BSE SME Exchange will guarantee successful listing unlike the Main Board as the issue will be 100 per cent underwritten. The norms for the listing on the BSE SME exchange are simplified and only approval from Exchange is required and not from SEBI. IPOs can be brought in two to three months' time. The Compliance norms are more simplified as an half yearly compliance is required instead of quarterly compliance. The listing fees on the BSE SME Exchange are as low as 50 per cent compared to the Main Board. In case the paid up capital of an SME increase to more than Rs 10 crore it has the option to migrate to the Main Board.

The most important distinguishing factor for the BSE SME Exchange is that it is an integrated Exchange with the main Exchange of BSE and thereby leverages the entire infrastructure of the existing equity platform and network of equity segment for the purpose of BSE SME Exchange.

In addition the BSE SME Exchange will provide a better valuation for SMEs listed on its board by unlocking their value. The promoters will be able to leverage the debt by raising and equity and the ratios will improve and the balance sheet will look much healthier. Listing on the BSE SME Exchange also offers immense tax benefits as any sale of shares of an unlisted company attracts 10 per cent long term capital gains tax. However, long term capital gain tax on sale of shares of a listed company is zero.

The listed SMEs will unlock their wealth in the medium to long term and will do the wealth creation for the promoters as well as the investors. Transparency and Corporate Governance will improve manifold pursuant to listing on the BSE SME Exchange. The listed SMEs will get better visibility among the investors.

The creation of a separate Stock Exchange/separate platform on existing exchanges for SMEs designed to cater to the needs of Indian SME’s has also been on the policy makers agenda for some time now. BSE is set to add another ‘first’ to its credit with the launch of India’s first dedicated SME Exchange platform.