According to data available with the Securities and Exchange Board of India (Sebi) there has been a considerable amount of increase takeovers. For instance, the number has jumped up from 52 in 1997-1998 to 75 in 1999-2000. During the first three-month period of 2001 as many as 25 companies had submitted letters of offer to the regulator.

Speaking to The Financial Express, HU Consultancy chairman Haresh Shah, an expert in mergers and acquisitions (M&A), said: "Many companies with small paid-up capital use this takeover route, which is known as reverse merger as a mechanism to attain back-door entry for listing, particularly on the Bombay Stock Exchange (BSE). Earlier, the criterion for listing on the exchange was that even companies with an equity size as low as Rs 25 lakh could get listed. Till recently, even issues with the equity size of Rs 3 crore were allowed to be listed. However, the floor level has now been increased to Rs 10 crore. Small promoters don't need so much money for their business plans, therefore reverse merger method is seen as a viable option. Eventhough Sebi and stock exchanges are not looking at this route favourably, nothing can be done because there is a provision for it in the Sebi regulations."

"There is nothing wrong and nothing is lost for investors, if it is done for a genuine purpose. But, if it is done with the intention to avoid giving information to investors about the profile of the company, then in the interest of the market, the regulator and stock exchanges must try to discourage use of this method." he added. Confirming such a trend some investment bankers said that mostly start-ups choose this route because of the stringent disclosure norms and high cost of listing procedure. Having burnt their fingers in the past, many investment bankers are not prepared to support small issues, because of the fear of losing credibility.