Unlocking SME Potential With Alternative Investments
Date: March 8, 2025
Steptrade Share Services’s Kresha Gupta discusses overcoming investor hesitation, scaling small businesses with equity financing and the growing role of AIFs in India’s investment landscape
For Kresha Gupta, Director and Founder of Steptrade Share Services, starting and managing India’s first SME-focussed alternative investment fund was not an easy task. For her, the biggest hurdle was changing investor perception, as many were hesitant. They were used to blue-chip stocks and found it difficult to trust an investment strategy focussed on smaller, lesser-known companies.
Gupta is the driving force behind the Chanakya Opportunities Fund, India’s first SME-focussed alternative investment fund.
“Bringing this vision to life came with challenges. Educating them, building trust, and proving the potential of this untapped space became our biggest challenge. We tackled this by maintaining complete transparency, demonstrating integrity, and consistently showing results,” she says.
In India, micro, small, and medium enterprises (MSME) contribute approximately 30 per cent to the nation’s GDP, yet only 14 per cent of the 63 million small businesses have access to formal credit, leaving a substantial credit gap of $530 billion. Women-led MSMEs face even greater challenges, with a financing gap of USD 158 billion, despite their significant contributions to the economy. Additionally, the World Economic Forum’s Global Gender Gap Report of 2024 indicates that nearly 54 per cent of Indian women still encounter difficulties accessing basic banking services due to social and cultural factors.
Funding Gaps
According to a 2022 report by the Lok Sabha Standing Committee on Finance, the credit gap in the MSME sector is around Rs 20 lakh crore to Rs 25 lakh crore, with about 47 per cent of credit demand remaining unmet. India has been making significant efforts to support the SME sector with the recent announcement of the Rs 10,000 crore Fund of Funds in the budget.
“There is still room for improvement in India’s funding landscape,” Gupta says. She emphasises the need to shift investor focus beyond large-cap companies, stating that investors should look past big numbers and recognise the potential within mid-cap, small-cap and SMEs.
It is also necessary to encourage women in investment leadership. She suggests that more women fund managers should be given opportunities to lead and take ownership of top investment roles. This, she notes, would naturally drive more capital towards women-led businesses.
Why Chanakya Fund?
For Gupta, the idea of launching India’s first SME-focussed AIF came from a deeply personal and professional understanding of the struggles faced by small businesses. She says Chanakya Opportunities Fund was founded with the vision of empowering SMEs, regardless of whether men or women lead them.
“Many SMEs, despite having strong business fundamentals and deep industry expertise, struggle because they rely heavily on debt financing. High interest costs often weigh them down, limiting growth and, in many cases, leading to failure. That’s when I realised the massive equity financing gap for SMEs,” she says.
Chanakya Opportunities Fund I, which supports SMEs under Make in India, supports over 15 pre-IPOs and 20 anchor investments to drive equity financing and growth.
“At Chanakya Fund, we focus on investing in promoters who understand their business but are held back due to financial constraints. Our investments provide them with the capital they need to grow, and being part of an AIF portfolio not only gives them financial support but also enhances their credibility and visibility in the market,” she adds.
Sustainable Investments
In India, a key trend is the growing investor enthusiasm for sustainability-driven businesses. There is a clear shift in the mindset of investors actively seeking opportunities in sectors like renewable energy, electric vehicles, recycling, and infrastructure, recognising their long-term potential.
As for AIFs, the sector has witnessed tremendous growth. In 2020, there were around 680 registered AIFs, and by August 2024, that number had doubled to over 1,300. This surge reflects increasing investor confidence in alternative assets and recognising that AIFs can bridge capital gaps in high-growth sectors like SMEs.
With significant participation from banks and major investment firms in SME-focussed funds, the SME ecosystem is poised for major growth. Of course, the sector comes with its risks, but with careful due diligence and a long-term vision, AIFs can help unlock the potential of SMEs.
Moving Forward
StepTrade Share Services has launched a Rs 1,000-crore India fund at GIFT City to provide foreign investors with seamless access to the Indian capital market. By leveraging the opportunities offered by GIFT City, the fund is expected to channel global investments into India’s growing financial ecosystem.
“Steptrade is about creating impact, proving that even small businesses can play on a big stage with the right capital. Over time, as we showcased strong returns and the growth potential within this segment, we started shifting the traditional investment mindset,” Gupta asserts.
Over the next year, StepTrade will focus on boosting its position in SME investments. The platform is committed to identifying and scaling high-growth SMEs listed on the SME Exchange, unlocking their potential, and ensuring strong returns for our investors
source : www.businessworld.in