The Chief Economic Advisor (CEA) of India, V Anantha Nageswaran, expressed his disappointment on Monday, arguing that (IPOs) are increasingly becoming exit vehicles for early-stage investors in a venture, a trend he believes is undermining the true spirit of public markets.
Speaking at an event in Mumbai, Nageswaran stated that India’s capital markets must develop “not just in scale, but in purpose” as well.
The CEA also cautioned against celebrating the wrong milestones, such as market capitalisation (m-cap) or the volume of derivative trading, clarifying that these are not measures of “financial sophistication”.
He added that such a focus “only risks diverting domestic savings away from productive investment”.
Nageswaran further remarked that whilst India has succeeded in establishing a robust and sophisticated capital market, this may have contributed, in part, to “short run earnings management optics” as they are linked to increases in management compensation and market cap.
“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.
55 IPOs in six months
Fifty-five Indian companies launched their IPOs during the April-September period, raising almost ₹65,000 crore. Most of these issuances were ‘offer for sales’ (OFS) by existing investors, with only a very small quantum of new share issuance that actually benefits the company.
The country cannot rely predominantly on bank credit for long-term financing, he added, calling a deep bond market a “strategic necessity” for funding long-horizon objectives.
The academic-turned-policymaker also noted that the Indian private sector has found “sufficient reason” to remain cautious and risk-averse by holding back investment decisions that could turn the “strategic constraints” the nation faces into opportunities.
“There is a need for ambition, there is a need for risk-taking and long-term investing. Otherwise, India, as it has discovered in the course of this year, will find itself falling short with respect to strategic resilience, let alone building strategic indispensability in a world where we want to be one of the largest players in the coming years,” he said.
He also emphasized the need to build strategic leverage commensurate with the economy’s size over the next decade.