Ficci has said that the step would dampen investors' sentiments and will severely lower prospects for a thriving VC industry in the country. "We are targetting committments to the tune of about $10 billion and such steps at this juncture will severly restrain potential investments," says Ficci.

VCs hold substantial stakes in portfolio companies. A large supply overhang, post-listing would put substantial downtrend pressure on the stock price, the chamber has said.

Regardless of the long-term value adding growth prospects of the company (which should be a principal factor in any stock investment decision), investors would find it attractive to invest in these companies through the market (post-IPO) rather than the IPO route.

Ficci says that VCs may stipulate that portfolio companies achieve listing through the `offer for sale' route rather than the `fresh capital issue route' to ensure profitable exits from their holdings.

Most VC assisted companies follow the United States generally Accepted Accounting Practices (USGAAP) while preparing their financial statements. In order to avoid compensation recognition (which USGAAP requires to report EPS) on stocks issues at discount to employees, most ESOP's are allotted at fair value.

Ficci further says that the proposed provision could also forcesub-optimal exit realisation on venture capitalists.