Fund mobilisation through equity, debt routes down 20% to `11 lakh cr in 2022

New Delhi: Fund mobilisation by companies through equity and debt routes has dropped 20 per cent in 2022 to nearly Rs 11 lakh crore, as exuberance dwindled this year due to expensive credit avenues and volatile markets. The first half of 2023 could continue to remain challenging.

The year 2021 was extraordinary for fundraising from the equity and debt routes, while 2022 has seen a slowdown in capital raising owing to elevated volatility provoked by unprecedented inflation globally and the Russia-Ukraine war.

"The first half of 2023 could continue to be challenging, largely driven by global macro developments. If the slowdown/recession in the US is mild, then we could see a rally in global markets in the second half of next year, which would aid investor sentiment and the Indian markets as well," said Vishal Chandiramani, Managing Partner Products and COO, TrustPlutus Wealth (India) Pvt Ltd.

Even with a bounce back in markets, it will be more difficult to garner funds over the next few years as compared to earlier, he noted. In the year passing by, mobilisation from debt markets has inched up, while fresh capital mop-up through equity instruments has sharply fallen as volatile stock markets triggered by geopolitical tensions resulted in IPO fundraising halving in 2022.

Debt market mobilisation continued to contribute a lion's share to the overall fundraising activity this year. Out of the cumulative Rs 11 lakh crore garnered till mid-December this year, funds totalling Rs 6.92 lakh crore were mopped up from the debt market, Rs 1.62 crore came from the equity market and Rs 2.52 lakh crore via the overseas route, data compiled by analytics major Prime Database showed.

In 2021, firms had raised Rs 13.6 lakh crore, including Rs 6.8 lakh crore through debt and Rs 2.85 lakh crore through equity, which constituted a record Rs 1.2 lakh crore from initial public offerings (IPOs). These figures suggest that the climate in 2021 was highly attractive for fundraising activities and the 2022 environment exhibited a stark difference.

TrustPlutus' Chandiramani described 2022 as a challenging year for domestic and global markets as compared to 2021. Inflation has spiked globally which has led to central banks raising interest rates multiple times during the year. This has increased the cost of borrowing and pushed up yields, resulting in one of the worst years for global bond markets in decades.

In addition, equity markets globally have been volatile with most giving negative returns, he added. Even in private markets, fundraising has slowed down drastically and the valuations are down 50-70 per cent from a year ago, said Kanika Agarrwal, co-founder, Upside AI.

"The year 2021 was a good one to refinance debt at lower costs, raise new capital through debt at highly optimised costs as well as avail happy valuations amid upbeat sentiments," said Nirav Karkera, Head of Research at Fisdom.

In 2022, the stimulus dried up, easy monetary policies started to reverse, runaway inflation became the global theme, the Russia-Ukraine war bruised global supply chains and along came a myriad set of challenges, he added.

Fresh capital was raised by companies for debt payment, to fund capital expenditure for new projects, support inorganic growth like acquisitions and also for marketing and R&D purposes. Of the total Rs 6.92 lakh crore raised through debt in 2022, Rs 6.84 lakh crore came from private placement and Rs 7,921 crore via public issuance.

A paucity of liquidity and low base of the interest rate cycle initially made debt routes cheaper for companies raising funds, said Vinod Nair, Head of Research, Geojit Financial Services. In the equity market, funds mostly came via preferential issue of equity shares, which is one of the fastest mechanisms for companies to rake in funds.

However, fundraising through other equity avenues such as Qualified Institutional Placement (QIP), rights issue and IPO saw a drastic

decline.