India Inc garners Rs 8.7 lakh cr from markets in 2019
New Delhi: Marking a major upswing in fund raising activities, Indian companies garnered Rs 8.7 lakh crore from domestic and overseas markets in 2019—up 20 per cent from the previous year—with debt instruments remaining the most preferred route for financing business needs.
Fund raising scenario in 2020 will depend mainly on the state of the market, economic growth, US-China trade war and the Union budget, said V K Vijaykumar, Chief Investment Strategist at Geojit Financial Services.
There will be good appetite for debt markets in the new year too due to falling interest rates in the country and RBI making external commercial borrowings (ECBs) more attractive for several sectors, including non-banking finance companies (NBFCs), by tweaking several norms like maturity period and end-use stipulation, said Gaurav Sood, co-head of equity capital market at ICICI Securities.
Out of the cumulative Rs 8.68 lakh crore garnered this year, a large chunk or over Rs 6.2 lakh crore has been mopped up from the Indian debt market, Rs 1.2 lakh crore from overseas bonds, and the remaining Rs 1.25 lakh crore came from equity markets, data compiled by analytics major Prime Database showed.
In 2018, firms had raised Rs 7.25 lakh crore, including nearly Rs 6 lakh crore through debt markets, over Rs 79,300 crore from equities and close to Rs 46,500 crore from overseas route.
The funds have been mopped-up mainly for business expansion plans, loan repayments and to support working capital, while a large amount raised from initial public offerings (IPOs) also went to the promoters for sale of their holdings. Of the total Rs 6.2 lakh crore mopped up through Indian debt markets, over Rs 6 lakh crore came from private placement and Rs 16,425 crore through public issuance.
Vijaykumar said fund raising through debt is preferred when interest rates are low. With 10-year bond yield hovering around 6.9 per cent, raising debt is attractive and the excess liquidity in the system ensures raising funds through debt is easy for good companies.
"Overall if you see globally and in India, debt capital raised is always significantly higher than equity as eligible unlisted firms can also raise debt through various mechanisms like public issue, private placement, overseas bonds and ECB, thereby expanding the universe of companies," said Sood. "Also, we need to understand that cost of equity in India has been higher than cost of debt which makes issuers raise equity very conservatively."
Sood further said that overseas bonds particularly have been popular with large corporates, given the low interest rates in the US and Europe. In equity market, funds mostly came from issuance of shares to institutional investors, rights issue and offer-for-sale route
through stock exchange mechanism, primarily due to volatile markets as such routes for raising funds are less preferred in stable markets.
Within the equity segment, rights issue of shares to existing shareholders helped raise Rs 52,000 crore, QIP or Qualified Institutional Placement accounted for Rs 35,238 crore, Offer for Sale (OFS) through stock exchange mechanism got Rs 25,811 crore, and IPO added Rs 12,975 crore, including for small and medium enterprises (SMEs).
A total of 16 main-board IPOs mopped-up Rs 12,365 crore and SME IPOs brought in Rs 610 crore.
This was way below than Rs 30,959 crore raked in through main-board IPOs and Rs 2,287 crore via SME segment in 2018.