Conventionally, capital market is defined as a part of a financial system which aids in raising capital through shares, bonds and other such instruments. But of the 23 lakh companies registered with the Ministry of Corporate Affairs, less than 6,000 have raised funds through the stock market. Companies have been reluctant to approach the capital markets for various reasons including the compliance burden, higher scrutiny from public and the authorities and promoters not wanting to relinquish stake. But an analysis of the initial public offerings this calendar year on the BSE and the NSE shows that while issue sizes are shrinking, the industries from where these offers originate are becoming diverse and more companies from beyond Tier I cities are now tapping primary market.

The market regulator needs to encourage this diversification in the interest of the companies as well as investors. Public issuances are now being made by companies from a wide gamut of industries including basic commodities such as chemicals and steel, biotech, pharma, food processing, e-commerce, retail and commercial services such as schools, human resources and consulting. Sectors which typically tap the IPO market such as BFSI and technology, while present, were quite small in number in 2023. A number of companies from beyond Tier I cities, tapping the capital market, is also increasing; half of the primary offers on the mainboard of the BSE and the NSE are from smaller cities this year. Some were from Davanagere, Nashik and Jaipur. Smaller sized public offers are now dominant with only 1 per cent of the offers (on both on the mainboard and the SME platform) sized over ₹4,150 crore in size. What is heartening is that 88 per cent of the IPOs cited general corporate purpose as the objective of the IPO implying that they will be using the funds for business expansion. It is evident that entrepreneurs are increasingly looking at capital markets as a viable fund-raising channel.

The reasons behind this increasing diversification range from the growing number of retail investors in stock market avidly welcoming these offers to growing entrepreneurship in smaller towns and the new generation business owners more willing to approach the stock market to grow their businesses. Either way, this is a win-win for all stakeholders. If smaller companies find it easier to sell their shares and raise money, they can reduce the debt on their balance-sheet.

Lack of options in the Indian stock market, including the higher concentration of BFSI and technology companies in the listed universe, has been a pain-point for long. This will now be addressed. Start-up promoters will find it easier to provide an exit to their existing investors through stock markets, once sustainable demand for such companies builds up. SEBI should do all it can to make the process of making public offers easier. Alongside, an awareness campaign can also be carried out targeting smaller companies.

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