Alternative Investment Funds (AIFs) to tap SME-focused IPOs

The high returns from Initial Public Offerings (IPOs) of Small and Medium Enterprises (SMEs) in recent years, coupled with government support for the sector, have encouraged Alternative Investment Funds (AIFs) to explore this growth potential.

AIF is a fund established or incorporated in India which is a privately pooled investment vehicle.

Paradise Moon Investment Fund, an AIF, has announced its launch with the aim of raising ₹750 crore over the next few years, targeting investors looking to leverage the growth of the SME market pre- and post-IPOs.

The fund aims to provide investors with a unique opportunity to tap into the growing potential of the Indian stock market and capitalise on the dynamic landscape of SME IPOs, an official said.

Approximately 900 SMEs have been listed on the SME platforms of both the National Stock Exchange and the BSE, with significant traction observed over the past 2-3 years.

“We seek to invite investment in Category 1 Alternative Investment Fund (AIF), with the visionary goal of becoming a leading investor in SME (pre and post) IPOs. The SME sector has witnessed notable expansion and development, contributing to a third of Gross Domestic Product (GDP)," said Naveen Bansal, Managing Director of Paradise Moon.

“The BSE SME Index has delivered annualised gains of up to 195% over the past decade. A ₹1,000 investment in September 2013 would be worth ₹1.03 lakh in 2023, a 100x return,” he added.

Officials noted that the growth and returns in the SME sector are expected to surpass those of larger companies on the main exchange board due to concerns over stretched valuations.

As part of the 'Aatmanirbhar Bharat' package, the government announced a ₹50,000 crore equity infusion for MSMEs through a Fund of Funds in July 2023 under the Self-Reliant India (SRI) Fund.

The fund, led by NSIC Venture Capital Fund, will be used for equity funding in MSMEs with the potential and viability to grow into large units. The government has provisioned ₹10,000 crore, with the remainder coming from private venture funds.