Marking a major upswing in fundraising activities, Indian companies garnered Rs 8.7 trillion 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.
Fundraising 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 trillion garnered this year, a large chunk of over Rs 6.2 trillion has been mopped up from the Indian debt market, Rs 1.2 trillion from overseas bonds, and the remaining Rs 1.25 trillion came from equity markets, data compiled by analytics major Prime Database showed.
In 2018, firms had raised Rs 7.25 trillion, including nearly Rs 6 trillion through debt markets, over Rs 79,300 crore from equities and close to Rs 46,500 crore from the 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 trillion mopped up through Indian debt markets, over Rs 6 trillion came from the private placement and Rs 16,425 crore through public issuance.
Vijaykumar said fundraising through debt is preferred when interest rates are low. With 10-year bond yield hovering around 6.9 per cent, rising 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 the 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.
"The sharp plunge in fund raising through IPOs could be attributed to negative market sentiment, low valuation coupled with lack of liquidity with equity investors who are sitting with losses on their portfolio," Sridhar Ramachandran, CIO at IndiaNivesh Renaissance Fund said.
In addition, PSU divestment took away the liquidity from the system, he added.
Apart from these factors, Sood said political uncertainty, the slowdown in the economy, US-China trade war and liquidity crises in NBFCs also impacted IPO activities.
"We also have to factor the various alternate sourcing of finance available to companies like private equity, who give superior valuation to companies over the public market investors and have higher risk appetite," he added.
While in terms of quantum there were few IPOs, there was strong investor appetite for companies across sectors like technology, high-quality BFSI companies, renewables, consumer, hospitality and healthcare.
Companies that came out with IPOs in 2019 included Sterling & Wilson Solar (Rs 3,125 crore), Chalet Hotels (1,641 crore), Spandana Sphoorty Financial (Rs 1,200 crore), Ujjivan Small Finance Bank (Rs 750 crore) and Indian Railway Catering and Tourism Corporation (Rs 645 crore).
Sebi Chairman Ajay Tyagi said that IPOs should be priced rightly to attract retail investors. "We want retail participation to grow but investment banks have to ensure that IPOs are priced rightly," he added.
Vijaykumar said that the quality of IPOs was good and consequently most of the IPOs listed in 2019 are trading above their issue prices.
IPOs, on average, listed 20 per cent above issue prices, although IRCTC was the exception with above 100 per cent listing gains.
Going head, Vijaykumar said the IPO market is likely to witness a continuation of the 2019 trend next year. We will not see a large number of IPOs but the quality is likely to be good.
Also, 12 companies tapped the rights issue route to collectively raise Rs 52,000 crore in 2019, while 13 firms had opted the mode last year and garnered Rs 18,826 crore.
Two large issues in the telecom sector accounted for most of the fundraising through the mode in the year. Vodafone Idea raised Rs 25,000 crore through the rights issue, while the same for Bharti Airtel stood at Rs 24,939 crore.
Besides, firms mobilised Rs 35,238 crore through QIPs in this year, which was significantly higher than Rs 16,587 crore raised in 2018.
The largest QIP of 2019 was from Axis Bank that raised Rs 12,500 crore.
In addition, funds mop-up via OFS route -- used for dilution of promoters' holdings -- climbed to Rs 25,811 crore in 2019 from Rs 10,672 crore in the preceding year. Of this, the government's divestment accounted for Rs 5,871 crore.
The largest OFS was that of Axis Bank (Specified Undertaking Of The Unit Trust of India) in February (Rs 5,358 crore), followed by SBI Life Insurance (Rs 3,524 crore) and HDFC Life Insurance (Rs 3,366 crore).