While Indian Stock Markets have progressed a lot in terms of disclosure and regulation with  market regulator SEBI introducing numerous reforms in the last decade or so ,there is a long way to go to achieve the standards of information disclosure and corporate governance seen in the developed markets. Investing in a mid cap  and even sometimes a large cap company can be dangerous because of problems associated with  corporate governance and information disclosure.Even after fraud or malfeasance is proved , promoters and big stock market players can get away with nominal  punishment like not operating in the market for X number of years.Unless the scandal turns out to be a huge one , life goes on as usual without any punishment or prosecution. . Improvement in law enforcement will lead to a higher equity participation by the Indian public which is abysmally low by international standards.IMHO Most of the Indians prefer to invest in bank deposits because of lack of faith in the system.Here are some instances of this hazards

1. Vanishing Companies – Small companies simply vanish from the stock market.They stop reporting results to the market and the investors have no way to exit as their stock stops trading as the exchange bans the company from trading.You are literally left holding scraps of paper
2. Collusion between Promoters of Companies and Big Brokers – There have been many instances when promoters and big brokers manipulate the market to ratchet up the prices of stocks with no fundamentals to speak of .The instances of the “pump and dump” are too many to enumerate
3. Accounting Scandals – While the “Satyam Scandal” is the biggest one , PWC in a recent report estimated that a very high percentage of companies resorted to accounting gimmicks.Read Satyam Computer Services scandal
4. Incestuous Dealings between private and public companies the same group – Most of the Indian family groups have a labyrinthine maze of company holdings. Most of the dealings done between these companies are to the benefit of the promoter at the expense of minority shareholders
5. Tax Frauds – Tax Frauds are dime  and dozen . They are frequent and don’t even raise much of an eyebrow.Get frequently entangled in the Indian judicial system for years.
6. News Frauds – Somebody circulates a fraudulent letter through major news media.Stock price goes up ,people in the know sell out to investors who believe authoritative news media.Read  Pyramid Saimira scam: How our business media was taken for a ride