The following is an excerpt from the book, "A Better India: A Better World" by N.R.Narayana Murthy.
In India, prior to 1991, there was a government officer in Delhi called the Controller of Capital Issues (CCI) who decided on the IPO price for Indian companies going public. This officer had very little idea of capital markets since he/she sat in Delhi while the capital markets were in Bombay, and he/she rarely travelled to Bombay or bothered to understand the dynamics of these markets. He/she would look at just the past performance of a company and allow a very low premium, if any, for the IPO pricing. Such a policy of government-determined IPO pricing was a disincentive for entrepreneurs who had to give up a large part of their equity to raise a small sums in the capital market. After all, capital markets are all about future potential rather than just about past performance.
In India, prior to 1991, there was a government officer in Delhi called the Controller of Capital Issues (CCI) who decided on the IPO price for Indian companies going public. This officer had very little idea of capital markets since he/she sat in Delhi while the capital markets were in Bombay, and he/she rarely travelled to Bombay or bothered to understand the dynamics of these markets. He/she would look at just the past performance of a company and allow a very low premium, if any, for the IPO pricing. Such a policy of government-determined IPO pricing was a disincentive for entrepreneurs who had to give up a large part of their equity to raise a small sums in the capital market. After all, capital markets are all about future potential rather than just about past performance.
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your posts on this book made me to read this book. after going through the some of the chapters, it is indeed very tough during those days for business and entrepreneurs. always, in my mind it is due to lack of talent and persistence we are behind to US or European. but the book disclosed the facts and difficulties (at least i am not aware of those).
ReplyDelete/Srinivas