India’s capital markets face three big challenges, namely, small amounts of money raised in IPOs, depth and breadth of debt markets, and a need for an alternative to grey markets, said Nilesh Shah, Managing Director of Kotak Mutual Fund.
While comparing today’s bull market to that in 1992, he said that a primary challenge lies in the exponential growth of the Indian share market. “More investors are pursuing shares than in normal times. As of today, our capital market is deep for equity but not as deep for hybrid and debt. In fact, my concern is that with the growing popularity of equity, the remaining money in the debt market poses a challenge to deposit growth for banks,” said Shah at the AIBI Annual Convention 2023-34 event on January 19.
"Can we afford a country running on just one wheel of equity? Or do we need a multi-faceted approach with wings in equity, debt, and hybrid?" said Shah, adding, "We need to develop the mesh market and hybrid market as much as our equity market."
The second challenge is the mismatch between the number of IPOs and the capital raised, said Shah. Despite the increasing number of investors, the market is regressing in terms of IPO size rather than progressing.
"The challenge remains in how we can transform our capital market to emphasize size, not just quantity. Although numerous IPOs are coming to raise capital, what we truly need is a deep market capable of providing capital for a large number of issues."
Shah pointed out to Mastergain 92, which raised about Rs 8,000 crore in 1992. “If we look at the current scenario, we realise that we haven't created an IPO with a size equal to Mastergain 92. So, in three decades, we have moved backward, not forward in terms of size."
The third focal point for Indian capital markets, according to Shah, is the need for pre-listing markets instead of relying on grey market premiums. He advocated, “We need a pre-listing market and not rely on the grey market premium. We should be moving our capital markets from unorganised to organised. There are many innovations in our market, but unfortunately they get lost in this transition.”
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