India’s initial public offering (IPO) market’s recent IPO trends have drawn criticism from the country’s Chief Economic Advisor (CEA), V Anantha Nageswaran.

Speaking at a recent CII event, the CEA noted that IPOs, traditionally vehicles for raising long-term capital to fuel business growth, are increasingly being used by early investors to exit their holdings.

This trend, he warns, risks undermining the fundamental spirit of public markets.

During the April to September period, Indian companies raised nearly Rs 65,000 crore through 55 IPOs, but most of the capital came from existing shareholders selling their stakes rather than new share issuance, benefiting the companies.

“India’s equity markets have grown impressively, but Initial Public Offerings (IPOs) have increasingly become exit vehicles for early investors, rather than mechanisms for raising long-term capital. This undermines the spirit of public markets,” Nageswaran stated.

Such offer-for-sale dominated IPOs provide liquidity to early investors but deliver limited fresh funds to businesses seeking expansion.

Nageswaran stressed the importance of evolving capital markets beyond mere size and turnover by cultivating purpose-driven investment that supports India’s long-term economic objectives.

He cautioned against celebrating milestones like market capitalisation or derivatives volume, as these metrics do not always reflect financial market health or sophistication.

Instead, the goal should be improved financial depth, including a much-needed expansion of India’s bond markets to provide sustainable finance avenues beyond bank credit.

The CEA further highlighted the need for greater ambition and risk-taking by private sector investors to transform India’s strategic challenges into opportunities. “There is a need for ambition, there is a need for risk taking and long term investing.” he added, “…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.”

India’s growing equity markets are a positive achievement, but making them truly productive and growth-driven calls for deeper reforms and cultural shifts in the investment ecosystem.

Promoting IPOs as genuine capital-raising platforms, developing debt markets for long-term funding, and encouraging patient capital will be key to India’s economic transformation, he said.

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