Development of equity capital market for msmes in India: An econometrics perspective

The main objective of the paper is to assess the state of SME equity capital market in India and to assess the impact of international SME equity markets on Indian SME market. In order to assess the state of SME equity market in India, its performance has been compared with the performance of international SME equity markets. For this purpose information on stock indices of different SME equity stock indices have been sourced for the period October 1, 2012 to March 31, 2017. Moreover, the ratio of number of companies listed on the SME platform and the number of companies listed on the main exchangehas been used as a tool for measuring the depth of an SME trading platform. For studying the interaction between the Indian SME stock market and the international SME stock markets, the Autoregressive Conditional Heteroscedasticity Mean (ARCH-M) model has been employed. Our study reveals that since its inception in the year 2012, the BSE SME market has been able to make a mark for itself. During the reference period, the performance of the market is impressive and much better compared to other international SME equity capital markets. However, international SME equity capital markets are more entrenched than the Indian SME equity capital market as measured by the ratio of number of companies listed on the SME platform and the number of companies listed on the main exchange. Regarding the interaction between the Indian and International SME equity markets, we ascertained that while volatility in Kosdaq and Chinext have negative impacts, volatility in Mothers and TSXV markets have positive impacts on volatility in BSE SME market. Moreover the impact of other two SME equity markets like, Alter Next and First North on BSE SME are statistically insignificant. We also ascertained that the BSE SME market is a risky market and the findings are statistically significant.