India Inc nets Rs 6.3 lakh crore from markets, bets big on bonds
Betting big on capital markets for raising funds, Indian companies have garnered an estimated Rs 6.3 lakh crore from the marketplace in 2016, with debt instruments being the most favoured route to raise money for their business needs amid volatile trends in equities.
Experts believe the corporates will continue to prefer debt route over equity markets for raising capital in the new year as well in the wake of the fall in interest rates, surplus liquidity in the banking system and an easier regulatory framework for issuance of debt securities.
Sentiments in equity markets have also weakened due to the demonetisation move and experts believe this trend may continue at least for the initial part of 2017.
Out of the cumulative total of Rs 6.3 lakh crore garnered this year from capital markets in 2016, a large chunk or more than Rs 5.5 lakh crore has been mopped up from debt market.
In 2015, firms had raised a similar amount and most of the funds were mobilised through debt markets that year too.
Fresh capital collected from equity market stands at nearly Rs 80,000 crore for 2016, which mostly came from preferential share allotments to promoters and initial public offerings (IPOs).
These funds have been raised mainly for expansion of business plans, repayment of loans and to support working capital requirements.
"In the wake of the fall in interest rates, surplus liquidity in the banking system and an easier regulatory framework for issuance of debt securities, firms may find debt as the preferred route for raising capital in 2017," Bajaj Capital's Senior VP and Head of Investment Analytics Alok Agarwala said.
"With surplus liquidity and lower lending rates, banks may be preferred as a source of capital in 2017. As interest rates and emerging market currency volatility have risen globally, firms shall find domestic markets relatively more attractive as compared to overseas markets for raising money," he added.
Echoing a similar view, Geojit BNP Paribas' Chief Investment Strategist V K VijayaKumar said the scenario is a bit uncertain for the upcoming year as demonetisation and the massive disruption that it has caused in the economy has increased the uncertainty factor.
"India's gross domestic product (GDP) growth and corporate earnings will be subdued for at least for two quarters in calendar 2017. The stock market as well as the primary market are likely to discount this.
"The Narendra Modi government is likely to press ahead with its anti-black money drive in 2017 too, with the focus shifting to benami property. This is likely to create further flutter in the market. US President Donald Trump's policies will also impact markets in a big way," VijayaKumar said.
In the debt segment, companies have mopped up Rs 5.13 lakh crore through debt placement route while Rs 38,600 crore has been raised through public issuance of debt this year.
Within the equity segment, preferential allotment of shares helped garner Rs 29,850 crore, followed by IPO (Rs 25,163 crore), Offer For Sale (OFS) through stock exchange mechanism (Rs 13,112 crore) QIP or Qualified Institutional Placement(Rs 4,481 crore), rights issue of shares (Rs 1,230 crore) and FPOs or Follow-on Public Offers (Rs 10 crore).
When it came to overseas markets, Indian firms have raked in a total of Rs 400 crore through American Depository Receipts (ADRs) and Global Depository Receipts (GDRs).
"Capital mobilisation from equity markets depends upon market sentiments. The first quarter of 2016 saw high volatility and weak sentiments in equity markets. Also, cost of raising debt was lower in 2016 as interest rates fell and corporate bond spreads narrowed since the second half of 2015. This encouraged firms to raise capital via private and public bond issues instead of equities," Agarwala said.
"At the same time, there were various regulatory initiatives for deepening Indian bond markets such as banks being allowed to issue Additional Tier 1 Bonds, to meet their capital requirement, investment limit for Foreign Portfolio Investors (FPIs) being increased and the withholding tax rate being reduced from 20% to 5%," he added.
Moreover, investors have also shown tremendous response to the pubic issues of NCDs made by NBFCs in 2016. Also, the recent spurt in Mutual Fund investments have created a large scope in corporate bond markets for companies. All these factors contributed tremendously to capital raising via the debt route.
The year 2016 has seen hectic fund-raising activities in the IPO segment despite a relatively lacklustre secondary market. Generally, IPO booms follow a robust equity market. The mode has given an opportunity for the companies to raise funds and provide exit to existing investors.
A total of 26 firms have collected over Rs 26,000 crore through IPOs this year -- making it the best one for public offers since 2010. Last year, a total of Rs 13,564 crore were mobilised by 21 issuers.
The year has seen ICICI Prudential Life's blockbuster IPO. The insurance firm raised Rs 6,057 crore through the initial share-sale plan.
"A large part of IPOs have been structured to offer exit to existing investors rather than raise fresh funds for the companies," said Munish Aggarwal Director Capital Markets at Equirus Capital, an investment banking firm.
The rise in mobilisation from IPOs was further aided by the launch of public issues from big and popular names such as L&T Infotech, RBL Bank and ICICI Prudential Life Insurance.
Attractive pricing for the IPOs, leaving some juice for investors, also contributed to the rise in fund-raising through this route.
However, the outlook for the IPO market does not appear to be bullish for the new year amid lingering domestic and global headwinds.
"Markets may continue to face headwinds in the first half of 2017. Hence, firms may find it difficult to launch IPOs in the first half of 2017. Their ability to raise money through IPO route in the second half of 2017 shall depend on recovery in growth and sentiments in equity markets," Alok Agarwala said.
Barring IPO, fund raising through other equity avenues have dropped in 2016 from last year. Capital raked in through preferential route declined to Rs 29,850 crore in this year from Rs 45,750 crore in 2015.
Also, money raised from QIPs stand at Rs 4,481 crore in 2016, while it was a staggering over Rs 24,000 crore last year. Besides, funds mop-up via OFS route slumped to Rs 13,112 crore in 2016 from Rs 35,570 crore from the preceding year.