NSE MD Ashish Chauhan has encouraged startups and MSMEs to consider public listings to raise funds while keeping operational control. He emphasized that public markets can unlock higher valuations and provide businesses with a strategic currency for expansion, offering an alternative to traditional private equity funding.
What Happened
Ashish Chauhan, the Managing Director and CEO of the National Stock Exchange (NSE), has called on Indian startups and micro, small, and medium enterprises (MSMEs) to utilize capital markets as a primary route for scaling their businesses. Speaking at an event organized by the JITO Incubation and Innovation Foundation, Chauhan argued that public listing offers a strategic advantage over traditional fundraising methods like bank loans or private equity capital. He suggested that by going public, founders can raise necessary capital for growth without needing to relinquish significant operational control.
The Shift to Public Funding
Chauhan highlighted a core issue that many startup founders face: the trade-off between raising money and giving up control to investors. Private equity and venture capital firms often demand significant influence over business decisions, which can restrict the founder's vision. By opting for an Initial Public Offering (IPO), companies typically offer a minority stake—often around 25%—to the public. This allows founders to access large pools of capital while remaining the primary decision-makers for the business.
Valuation and Strategic Currency
Beyond capital, Chauhan pointed to the valuation potential of public markets. He noted that profitable companies often receive significantly higher valuations in the public domain compared to private market estimates. As an example, he suggested that a company generating ₹2 crore in annual profit could potentially command a market capitalization of ₹40 crore to ₹50 crore once listed.
He further explained that a company's listed stock acts as a form of currency. This is particularly useful for growth strategies such as acquisitions, forming strategic partnerships, pledging shares for additional funds, or issuing Employee Stock Options (ESOPs) to attract top-tier talent. He cited the historical example of Infosys, which leveraged its listed status effectively in its early growth phases.
The Reality of SME Listings
While the prospect of public listing is attractive, it brings a shift in business operations. Listed entities must adhere to strict regulatory standards set by exchanges and the Securities and Exchange Board of India (SEBI). This involves regular financial disclosures, independent audits, and transparent corporate governance. While Chauhan encouraged founders to embrace this transparency, the administrative and compliance costs associated with being a public company are higher than those for private enterprises.
Additionally, companies on platforms like NSE Emerge—the dedicated segment for smaller enterprises—often face different liquidity profiles compared to mainboard listings. Investors in these segments are typically more sensitive to governance quality and profit track records.
What Investors Should Track
For investors and market observers, the trend toward more SME and startup listings continues to be a key monitorable. As more startups look to list, the quality of their public disclosures and their ability to maintain profitability post-listing will be crucial. Investors should watch for the regulatory environment surrounding SME IPOs, as SEBI frequently updates guidelines to ensure fair practices and curb excessive speculation in smaller stocks. The focus remains on whether these companies can sustain the valuations they demand upon entry to the public market.