IPOs as Exit Routes: CEA Nageswaran's Concerns
Chief Economic Advisor V Anantha Nageswaran has raised pertinent concerns regarding the evolving role of Initial Public Offerings (IPOs) in India. Speaking at the CII Financing Summit, he pointed out that these public offerings are increasingly used as exit strategies for early-stage investors rather than as tools for raising long-term capital. This trend, according to Nageswaran, undermines the core purpose of public markets.
As of 2025, a significant 84 companies have collectively raised ₹1.30 lakh crore through IPOs. Alarmingly, 64% of this amount, which equals ₹82,976 crore, was raised through the Offer for Sale (OFS) route. This indicates that a considerable number of promoters and early investors are opting to partially exit their holdings, raising questions about the stability of the capital markets.
In response to Nageswaran’s remarks, SEBI Chairman Tuhin Kanta Pandey acknowledged the complexity of capital markets. He stated that while IPOs serve as both an exit route and a means of raising funds, there are various types of IPOs, including those from greenfield companies that raise money and grow before going public. Pandey emphasized the importance of providing diverse options for investors.
Nageswaran stressed that India cannot rely solely on bank credit for long-term financing. He called for the establishment of a robust bond market to meet these financing needs. He also highlighted the essential role of insurance and pension funds, which typically align their investments with long-term horizons.
Despite being one of the fastest-growing major economies, Nageswaran noted that foreign investors continue to demand a higher risk premium from India compared to other developing nations. He expressed concern that if capital flows are influenced predominantly by geopolitical factors, external financing may not be sufficient to meet India’s development ambitions.
For India to maintain its growth trajectory and achieve its goal of becoming a developed economy, Nageswaran identified four domestic drivers that must be strengthened: industrial advancement, leveraging the demographic dividend, achieving energy self-sufficiency, and enhancing innovation capabilities.
However, he cautioned against the tendency to celebrate premature milestones such as market compensation ratios or derivative trading volumes, warning that these do not reflect true financial sophistication and may divert domestic savings from productive investments.
