Sumit’s Portfolio

I totally get where you’re coming from—those reasons are exactly why I got into the SME space myself! But lately, I’ve found myself a bit more cautious, and here’s why:

1. Quality of Information: Sure, there’s more information available today, but with SMEs, I’m not always confident about how accurate or transparent it is. Sometimes their financials feel a bit shaky or inconsistent, and that makes it tough to really dig deep and trust the numbers.
2. Liquidity Issues: The low trading volume in these stocks can be a double-edged sword. It’s great when you’re buying undervalued stocks, but not so much when you want to sell, and there just aren’t enough buyers. That can make exiting a position tricky and potentially costly.
3. Governance Risks: I’ve noticed that corporate governance can be hit or miss with SMEs. There’s always that worry about the alignment (or lack thereof) between the promoters and the minority shareholders. It makes me think twice, especially when it comes to trusting the management’s decisions on how they handle money or related party dealings.
4. Funding Constraints: Many of these companies struggle with access to capital, especially during tough economic times. This can limit their growth and, in some cases, even threaten their survival. I’ve also seen instances of frequent equity dilution to raise funds, which can really hurt returns for those who got in early.
5. Sector Risks: SMEs tend to be concentrated in a few sectors, which can be pretty cyclical. I’ve seen this especially in manufacturing or real estate—one bad turn in the economy or policy shift can hit hard. So, there’s a bit of a risk in being overexposed to these fluctuations.
6. Hype and Overvaluation: In bull markets, it’s easy for some SMEs to get caught up in the hype and end up overvalued. It’s exciting at first, but I’ve seen corrections that are brutal when prices snap back to reality.

Don’t get me wrong, I still believe there are hidden gems in the SME sector, and I love finding them! But I’m trying to be more selective now, looking for companies with solid governance, a real competitive edge, and a sustainable growth path.