CEA Raises Alarm Over IPO Market Direction
India's equity markets are witnessing an unprecedented surge in initial public offerings, but this boom comes with significant concerns about their fundamental purpose. Chief Economic Advisor V Anantha Nageswaran has sounded a warning bell, stating that IPOs are increasingly transforming into exit vehicles for early-stage investors rather than serving as instruments for raising long-term capital.
The statement came during the CII Financing Summit on Monday, November 18, 2025, where Nageswaran emphasized that this trend undermines the very spirit of public markets. His concerns emerge against the backdrop of frenetic IPO activity in domestic capital markets, where promoters and pre-IPO investors have been successfully divesting their holdings at attractive valuations.
Staggering Numbers Reveal the Trend
The data supporting Nageswaran's apprehension is compelling and substantial. So far in 2025, 84 companies have raised an impressive Rs 1.30 lakh crore through IPOs. However, the concerning detail lies in the composition of these funds. According to primedatabase.com, a striking 64 percent of this amount, equivalent to Rs 82,976 crore, was raised through the Offer for Sale (OFS) route.
This significant OFS component clearly indicates that promoters and early-stage investors are partially exiting their holdings, validating Nageswaran's observation about IPOs becoming exit mechanisms rather than capital-raising tools for long-term growth.
Regulatory Perspective and Market Balance
When questioned about these observations during the same event, Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey presented a more balanced viewpoint. He acknowledged that while exits do occur through IPOs, money is simultaneously raised for companies.
Pandey explained that numerous companies are built with investor money, and when they achieve a certain scale through IPOs, some stakeholders naturally exit. He also highlighted the existence of greenfield companies that raise capital from investors and subsequently reach substantial size through public offerings.
"In our opinion, all types of varieties and possibilities should be there in the capital markets," Pandey stated, emphasizing the need for diverse investment and exit options within the ecosystem.
Broader Economic Implications and Solutions
Nageswaran expanded his analysis beyond the immediate IPO concerns to address India's broader financing challenges. He stressed that India cannot rely predominantly on bank credit for long-horizon financing and urgently needs to develop a deep and reliable bond market to meet substantial funding requirements.
The Chief Economic Advisor specifically identified insurance and pension funds as crucial players whose investment horizons naturally align with long-term projects, suggesting they must assume a larger role in the financing landscape.
He also highlighted emerging challenges in global capital flows, noting that traditional market signals and macro-fundamentals are increasingly being influenced by political alignments and strategic considerations. Despite India's position among the world's fastest-growing major economies with robust macroeconomic fundamentals, foreign investors continue to demand a higher country risk premium compared to many developing peers.
Nageswaran delivered a crucial message about self-reliance: "If capital flows continue to gravitate along geopolitical fault lines, external financing alone will be insufficient to meet the scale of our development ambitions. If India is to fulfil its aspirations, the primary drivers of financing must increasingly come from within."
Pathway to Sustainable Growth
For India to maintain its growth trajectory on the journey to becoming a developed economy, Nageswaran identified four critical domestic drivers that need strengthening:
- Industrial upgrade across sectors
- Harnessing the demographic dividend effectively
- Achieving near energy self-sufficiency
- Deepening innovation capacity systematically
However, he cautioned that these priorities cannot be achieved quickly or through momentum alone. The Chief Economic Advisor specifically warned against premature celebrations and misdirected focus.
"We must guard against celebrating the wrong milestones, such as market-compensation ratios or the volumes of derivatives traded. These are not measures of financial sophistication. They only risk diverting domestic savings away from productive investment," Nageswaran emphasized, urging stakeholders to maintain focus on substantive economic indicators rather than superficial metrics.
The warnings from India's top economic advisor come at a critical juncture when the country's capital markets are experiencing unprecedented activity, raising important questions about the fundamental purpose of public offerings and their alignment with long-term national development goals.
