India’s Chief Economic Advisor V Anantha Nageswaran on Monday cautioned that a rising number of initial public offerings are being used largely as exit avenues for early investors rather than as tools for raising long-term capital, undermining the fundamental purpose of equity markets.
Speaking at a CII event, Nageswaran said the country’s capital markets must evolve “not just in scale, but in purpose”. He noted that India is increasingly witnessing IPOs dominated by offer-for-sale (OFS) components, with negligible fresh capital infusion into companies.
“India's equity markets have grown impressively, but Initial Public Offerings have increasingly become exit vehicles for early investors, rather than mechanisms for raising long-term capital. This undermines the spirit of public markets,” he said.
According to market data, 55 companies tapped the IPO market between April and September, raising nearly Rs 65,000 crore. Most of these issuances were OFS-led, providing limited benefit to the companies themselves.
Nageswaran also cautioned against “celebrating the wrong milestones”, such as market capitalisation or the surge in derivatives trading, adding that these do not reflect true financial sophistication and could divert domestic savings from productive investment.
He further flagged the risk of short-term earnings management, driven partly by the linkage between market performance, management compensation and valuation metrics.
The CEA emphasised the need for a deeper bond market, calling it a “strategic necessity” for financing India’s long-term ambitions. India cannot rely predominantly on bank credit for long-horizon financing, he said.
Freshly returned from a US trip, Nageswaran also noted that corporate India continues to exhibit caution despite the economy’s strong macro fundamentals. “There is a need for ambition, for risk-taking and long-term investing. Otherwise, India will fall short of building strategic resilience,” he added.
He underscored that the country must develop strategic leverage commensurate with its economic size over the coming decade, urging private players to convert strategic constraints into opportunities. |
