In last few months, quite a few Indian business houses embarked upon fund raising for one reason or the other. Some businesses raised funds for debt financing needs, some needed operation cash, some needed working capital, some need for growth needs, and many needed it little bit for everything. Furthermore, the method adopted by business houses have been varied such as qualified institutional placements (QIPs), american depository shares (ADS), global depository shares (GDS), non-convertible debentures (NCDs), asset sales, stake sales, and public offering (IPOs). In general the response has been tremendous and quite a bit of capital was/is being committed by all the participants, including retail investors like you and me.

In April/June 2009 timeframe, it is estimated that a total of $24 billion was raised by Indian companies, while it is estimated that $30+ billion was raised in first six months of 2009. Now this is just the amount raised and does not include the amount committed. The table below shows the some the companies that have gone to capital markets for raising funds. It is not comprehensive but shows the level of capital raised in foreign markets, and in Indian markets.

If you look at the amount of capital that is being committed, then one can ask a question as what is going on? There is just too much money out there and very few opportunities. Businesses had no issues raising millions and billion in foreign markets. At the same time, Indian markets also committed thousands of crore.

Business media is full of bonhomie and hype. Similarly, all the medium and small brokerage houses and personal finance advisors/planner keep hyping these few opportunities. Blog-o-sphere is also filled with positives of these IPOs. Isn’t this herd mentality? Everybody wants to join in this “me too” world. Does any investor or personal finance advisor ask, why are we agreeing to buy at hyped price? what is the probability of success? What the chances of allotment? Even if it is allocated, then what? In case of NCDs one will get fixed income assuming company makes money, but what happens in IPOs? Does reliance power ring the bell to you! We just do not learn our lesson.

Economists keep saying there are thousands of opportunities in Indian economy, then where is it? Why is such large amount of capital chasing only few opportunities? Can anybody in business media or so call advisor point us in direction of real opportunities? Herd mentality makes us focus on few big ones which are hyped, and we happily close our eyes on the price we are paying.

Ironically, there are thousands of small businesses and budding entrepreneurs who face difficulty in raising funds. Pundits characterize them as risky and difficult for small investors. Well, I don’t think they are “any more riskier” than mutual funds or stocks or IPOs. It is just the perception that makes them riskier. In general, the probabilities of making a positive returns are average (or similar to any other equity based investing vehicles), BUT expected returns are much more higher than any other asset class. Small companies and/or new startups are an asset class which should find a place in long term investor’s portfolio.

And the reason you do not see such pundits pointing towards these opportunities is because there is no fees or commissions or brokerages. They do not know or they are not good enough to understand this asset class. What are your thoughts on this subject?

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