IPOs being used as ‘exit route’: CEA

MUMBAI: Chief economic advisor V Anantha Nageswaran has criticised the trend of IPOs being used as exit routes rather than fundraising tools, stating that this “undermines the spirit of public markets”. He called upon banks and financial institutions to become bolder, technologically sharper and more willing to take calculated risks.The CEA also warned against celebrating wrong milestones like market capitalisation and turnover in the derivatives segment as indications of economic progress. He was speaking at a CII summit.At the same conference, Sebi chief Tuhin Kanta Pandey said that doubling the investors base in India, by adding another 100 million (10 crore) over three to five years is one of his priorities.In his speech, the CEA urged the financial sector to guard against complacency, stressing that global shifts demand a more cautious approach to capital flows and market behaviour. He warned that geopolitics is increasingly shaping investment decisions, noting that “capital flows… are now increasingly influenced by political alignments and strategic considerations”.This, he said, exposes India to volatility that cannot be addressed by relying on external funding alone. He cautioned that India must strengthen domestic institutions because “external financing alone will be insufficient to meet the scale of our development ambitions”.Nageswaran also flagged the risks emerging from advanced economies, where asset prices are rising even as real economic indicators weaken. Citing the IMF’s warning, he said “a potential bust of the AI boom could rival the dot com crash in severity”, underscoring the possibility that global corrections could spill into India’s markets. He added that “India cannot allow its financial sector to drift away from the real economy”, emphasising the need to insulate domestic markets from instability abroad.The CEA also argued that India “cannot rely predominantly on bank credit for long horizon financing” and must instead build a deep and transparent bond market. Trust and corporate governance, he said, were central to this effort because “the edifice of the bond market will be built on the foundations of trust and transparency”.The CEA also urged policymakers to “avoid the temptation to celebrate prematurely” and called out specific examples of misplaced enthusiasm. “We must guard against celebrating the wrong milestones, such as market capitalisation ratios or the volumes of derivatives traded,” he said. Such measures, he added, do not reflect true economic progress and instead “risk diverting domestic savings away from productive investment”.Sebi chief Pandey, during his interaction with the audience, said that a recent, intensive investor survey by Sebi showed that 63% of the people know about the securities market, 22% showed their willingness to invest in the market in the next one year but just 9.5% were actually invested in securities.Pandey said these numbers indicate that there is a very big responsibility on all the stakeholders, the regulator, the industry and the issuers, to get good quality papers into the market. He also emphasised the need for investor education and built-in safeguards so that they don’t get defrauded when they come to invest.Replying to a query about a possible scenario of a sharp downturn in the US markets over the next few months and its impact on the Indian market, the Sebi chief indicated limited impact on the country’s market since lately domestic investors have been playing a very strong role in the Indian market. “The (domestic investors) will be the shields against the shocks that can come,” he said.Pandey also said that the Indian securities market was no longer a passive mirror of the economy but it was now “an active partner in national building”. Pandey added that Sebi’s agenda is not to add new rules, but the approach is about shaping a smarter rule book that would be simpler to understand, proportionate to the risks it seeks to address and supportive of innovation.