Relevance of Capital Markets in Microcosm Markets in India: Need for Alternative Financial Intermediation Mechanism

Navaneethakrishnan Sankaraiah


Emerging markets continue to dominate the global economy news space. The Pricewatehouse Coopers (PWC) report on capital markets in 2025 projects that the focus of initial public offering (IPO) activity is shifting to the East. The report refers to a survey conducted by Economic Intelligence Unit (EIU) on behalf of PwC with almost 400 senior managers at companies across the globe. The survey is about factors that shape the development of equity capital markets. One of the key findings of the survey projects that India will emerge as an attractive destination for IPOs next only to China. But, current status of Indian capital markets depicts a muted performance and it could be inferred that there is more inclination towards debt than equity.

In this back ground, this paper explores the need for alternate financial intermediation options to foster growth in next generation enterprises in India. The model could be studied for relevance in other similar emerging economies.

Other sources of funds include:

• Private Equity (PE) funds have already burnt fingers due to bad investment rationale and decisions resulting in 300 odd funds sitting over USD 20 Bn of unutilised funds (Source:

• Venture Capital (VC) funds that could invest in investments less than USD 20 Mn are interested in disruptive technology based investments.

• New breed of investments in social entrepreneurship provide some hope but the sustenance of the investments is yet to be evaluated.

This paper discusses the need for growth capital for MSME segments for companies in general business space with an investment size less that USD 20 Mn. These companies are not tech startups that get wide coverage in mainstream business media. These companies fall under the definition of MSME, represent the real economy and will be the next generation growth propellers. These businesses have limited access to primary markets and will not be an attractive target for the PE and VC players in existing formats.


MSMEs, Growth Capital, Private Equity, Primary Market, Equity Capital

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