The Risky Nature of Indian Stock Markets
The Indian share market has long been perceived as a quasi-gamblers’ den, and this perception isn’t entirely unfounded. While financial experts and economists may resent this description, the unpredictable nature of stock markets does resemble gambling for many investors. However, it’s worth noting that the term “gambling” might not apply equally to all participants. Insiders often manipulate the market, bending it to their advantage, leaving average investors to fend for themselves.
The Primary Market’s Hidden Flaws
The manipulation begins at the very first stage—Initial Public Offerings (IPOs). During the era of the Controller of Capital Issues (CCI) under the Ministry of Finance, companies had little leeway to dictate pricing. However, with the advent of liberalization in 1991 and the establishment of SEBI as the market regulator, companies gained substantial control over pricing, often at the expense of retail investors.
Take, for instance, Paytm’s 2021 IPO priced at an astonishing ₹2150 per share with a face value of just ₹1, reflecting a staggering premium of over 2,14,900%. Such exorbitant valuations reveal the inherent imbalance in the current system, where promoters and major stakeholders walk away with massive profits, while retail investors are left bearing the brunt of inflated prices.
The IPO-OFS Nexus: Conflict of Interest
A major contributor to the aggressive pricing of IPOs is the Offer for Sale (OFS) model, where promoters offload their pre-existing shares during the IPO. This practice creates a severe conflict of interest, as promoters aim to maximize personal profit rather than ensuring long-term growth for the company. The harsh reality is that the hype surrounding most IPOs often leads to massive listing losses instead of the anticipated gains for small investors.
The Manipulated Secondary Market
The secondary market—where shares post-IPO are traded—is plagued by unethical practices like insider trading and front-running. While mutual fund officials and insiders exploit price-sensitive information for personal gains, ordinary investors often find themselves grappling with unpredictable market movements.
Additionally, the unregulated flow of Foreign Portfolio Investors (FPIs) adds to the market’s volatility. FPIs can drive valuations to absurd levels when they enter and cause sudden market crashes when they exit, as they have been doing recently while redirecting investments from India to China.
The Shifting Landscape of Investments
The current system offers little protection for small investors. While the secondary market is considered a safer entry point than the IPO market due to the gradual correction of overpriced stocks, it remains rife with challenges. Mutual funds, thanks to their diversification and expert fund management, appear to be the only relatively safe option for small investors.
The Call for a Vibrant Bond Market
To provide a viable alternative to high-risk equity investments, the government must establish a robust bond market. A well-structured debt market can attract small investors, offering them stability and security that the equity market sorely lacks.
Conclusion: The Market’s Stark Reality
The Indian share market continues to operate as a quasi-gamblers’ den, where insiders reap substantial profits while outsiders often face financial ruin. Until structural changes are made to protect retail investors and curb unethical practices, the market will remain a perilous landscape for most participants.
Author: This news is edited by: Abhishek Verma, (Editor, CANON TIMES)
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