Mumbai: Of the 86 odd firms that announced their intention to raise funds through a qualified institutional placement (QIP) in calendar year 2015, almost 59 firms are yet to launch their issues, data from primary market tracker Prime Database shows.
Their plans to raise money through QIP has been dealt a blow by their falling stock prices.
So far this year, we are yet to see any QIP launch. In 2015, 32 firms raised almost ₹ 19,064.9 crore through the QIP route; in 2014, 33 firms raised ₹ 31,682.2 crore.
According to a Mint analysis, the stock prices for the firms that are yet to launch their QIPs have fallen an average almost 30% from their 52-week highs. For example, large firms Cadila Healthcare Ltd, Glenmark Pharmaceuticals Ltd and Punjab National Bank Ltd saw their stock price decline by 27.9%, 40.6% and 47.7%, respectively, as on Monday.
Given the substantial fall in the stock prices and the current market volatility, the launch of these issuances could be further delayed, industry experts say.
“QIP is a bull market product. They are normally structured at a discount to the market price and so in a rising market, investors expect to make money immediately on allocation," said Prithvi Haldea, chairman of Prime Database group, adding that in a volatile or declining market people will not be keen to invest in a QIP.
The benchmark Sensex has shed almost 7% since the start of 2016, driven by concerns around falling crude prices and the Chinese economy. The rout in the global financial markets has made foreign institutional investors pull out close to $1.8 billion from the Indian stock markets since the year started.
All of this does not bode well for companies that have planned QIPs. Additionally, a majority of these firms are from the mid-cap segment that has borne the maximum brunt of market volatility. The BSE midcap index is down 11.6% from its 52-week high.
“While initially there was a thought that mid-caps might perform better than large caps in volatile markets, in recent months, mid-caps have taken a bigger hit," said Munish Aggarwal, director at investment bank Equirus Capital.
According to experts, QIP launches will be very selective in the near term.
“Transactions where promoters are sticky with the valuations, the deals might get delayed. Whereas in case of companies which are fundamentally good and have a plausible need for raising capital in the near term, the deals will still happen," said Aggarwal, adding that companies with flexibility in timing for capital raising plans or where the valuations have corrected sharply will like to wait.
It’s not just market volatility that is playing spoilsport for these companies. Sectoral problems too have complicated their troubles.
The Reserve Bank of India’s (RBI) stance on non-performing assets (NPAs) has resulted in uncertainties for the banking sector.
In December, RBI had asked banks to increase provisions to cover visibly stressed assets in the second half of this fiscal year. This process is likely to result in a jump in gross bad loans and provisions over the next few quarters.
Meanwhile, numerous negative observations from the US Food and Drug Administration (FDA) has dented the sentiment on pharmaceutical stocks.
However, companies might get some reprieve post the budget, which will be announced on 29 February.
“Budget is the next major trigger for Indian equity markets and unless there are any negative surprises in the budget, we expect deal activity to increase post the budget," said Aggarwal.