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IPO Warning: The country’s Chief Economic Advisor has expressed concern about IPO. He said that early investors of IPO withdraw their money after listing, which affects the market sentiment.
New Delhi. The Chief Economic Advisor (CEA) has raised the issue of a big problem amidst the IPOs going on in full swing in the stock market. He said that early withdrawal of money by investors through IPO is weakening the market sentiment. CEA said that any stock market should be big as well as purposeful. But, the objective of those investing in IPO is more to withdraw money by earning quick profits.
Chief Economic Adviser (CEA) V. Ananth Nageswaran on Monday lamented that initial public offerings (IPOs) are becoming a means of exit for early investors in an enterprise, thereby weakening the sentiment in the public markets. Speaking at an event organized by CII, Nageswaran said that the country’s capital markets should grow not only in scale but also in terms of purpose.
What did CEA say on the futures market?
The CEA also urged to avoid celebrating the wrong benchmarks such as market capitalization or futures-options trading volume. It was also clarified that these are not measures of financial sophistication, rather such efforts only create the risk of diverting domestic savings from productive investment. However, India has succeeded in developing a strong and sophisticated capital market. Short-term earnings also contribute to the management outlook, as they are linked to increases in management remuneration and market capitalization.
Launched 55 IPOs in 5 months
CEA’s concern can be gauged only by looking at the number of IPOs in the Indian stock market. In the current financial year, in the period of April-September i.e. in 6 months, 55 Indian companies have raised about Rs 65,000 crore by issuing IPOs. Most of the shares were issued for sale by existing investors and the volume of new share issuance was very small to provide any benefit to a company. The CEA said the country cannot depend primarily on bank loans for long-term financing.
Special emphasis on releasing bonds
CEA termed the bond market as a strategic necessity for financing long-term objectives. Singh, an academician-turned-policy maker, said the Indian private sector has got enough reasons to be cautious and risk-averse. Investment decisions should not be taken as this may turn the strategic constraints facing the country into opportunities. What is needed now is ambition, risk taking and long-term investment. Otherwise, India will continue to find itself lagging behind in terms of strategic strength, as it has discovered during this year.
Forget about creating strategic indispensability in a world where we want to be one of the biggest players in the years to come. He also stressed the need to leverage strategic leverage commensurate with the size of the economy in the next decade.
