New York City-based merchant bank Emissary Capital LLC that specialises in handling Indian companies is leading the charge for Indian companies to obtain stock market listings in the US.

Emissary assists Indian companies in raising funds from investors based in the US and Europe in conjunction with a US stock market listing. This turns a fast-growing Indian company into a US public company, with the prestige and capability to raise money from US and European institutional investors.

Emissary says SMEs are a dynamic force in India's robust economy. An overwhelming 95 per cent of industrial units in India fall under this category. India's strength in the information technology sector is well known, but it is India's fast growing manufacturing sector, driven by approximately three million SMEs in sectors ranging from auto components to industrial goods, which is rapidly making India a leading global manufacturing hub.

It seems debt financing is not the only answer for SMEs. There seems to be an across the board consensus that Indian SMEs have not been able to fully tap their potential and keep pace with India's growth because of their inability to access greater sources of financing.

For the vast majority of Indian SMEs, the high domestic interest rate regime (prime rate of 12.75 per cent to 13.25 per cent) is a substantial hindrance to faster growth. Furthermore, the ability to raise debt financing outside India (typically referred to as external commercial borrowings (ECBs) is strictly regulated by the Reserve Bank of India (RBI).

In its statement, Emissary says that the Indian stock markets including the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) have essentially ignored the robust Indian SMEs.

The average size of an Indian IPO rose to approximately $100 million in 2007-2008, while smaller Indian companies seeking to raise funds of less than that amount have found it increasingly difficult to raise funds through Indian stock market listings.

The statement cites data gathered by the Securities and Exchange Board of India as ratifying only 104 companies have raised capital in the range of $2.5 million to $125 million in March 2007 fiscal year. No companies have raised money in the $1.25 million to $2.5 million range since April 2007.

Finally, only 52 companies have been able to raise funds in the range of $2.5 million to $125 million in the March 2008 fiscal year.

Emissary says the reason for fewer smaller Indian IPOs is because Indian merchant bankers prefer to work on bigger IPOs that earn them bigger fees, as the work required for a small IPO compared to a large IPO is relatively the same. Also, the regional stock exchanges, where the majority of SMEs would list themselves if possible, face stiff competition from India's two major stock exchanges, the BSE and the NSE.

Instead of having Indian SMEs rely on rupee loans with very high interest rates, Emissary's strategy involves providing equity financing together with US public stock market listings to Indian SMEs.

Being a US public company provides Indian SMEs with increased exposure and visibility as well as prestige. Also, US public companies enjoy better valuations than their private company counterparts, which is integral to Indian companies' long term success as the Indian growth story continues to unfold in the near future.

Emissary Capital says it is dedicated to working with Indian companies in traditional industries, with a special focus on consumer goods, retail, manufacturing, real estate and energy.