If delisting of shares from exchanges is made easier, private equity funds can play a better role in the turnaround of small companies
Do you know that 86 percent of companies listed on Indian stock exchanges, account for only 3 percent of the market capitalisation? The remaining 14 percent, made up of blue chips and market darlings, account for 97 percent of the market cap. This is not different from what it is globally, but there is an additional catch in India.
Ignored by investors and stock researchers, small cap companies can’t raise growth capital or rope in players like private equity firms. “A mid-sized company that wants to do a follow-on public offer will not even be touched with a barge pole by merchant bankers,” says Raja Kumar, the head of private equity firm Ascent Capital.
Yet, it’s no one’s case that these companies are has-beens. There are hidden gems which, with a little outside help, could put themselves back on the path to high growth. Harish H.V., a partner with advisory firm GrantThornton, estimates there are around 100-150 such gems in the 6000-odd small cap stocks.
(This story appears in the 15 July, 2011 issue of Forbes India. To visit our Archives, click here.)