Besides, there was a slight shift in preference for convertibles. About one-fourth of all the funds raised in this quarter were through sale of FCCBs. In the July-September quarter, convertible bonds accounted for only around 8% of the total funds raised through sale of equity and equity-linked instruments.

Excluding the sale of FCCBs in the two quarters, funds raised through pure equity issuances more than halved to Rs22,035 crore. According to an investment banker who did not want to be identified, demand for pure equity issuances peaked in the September quarter. Besides, while the world economy hasn’t really come out of the woods, current equity valuations factor in a much rosier picture. This has considerably increased the risk of pure equity investments.

Graphics: Ahmed Raza Khan / Mint

In the case of recent fund-raising efforts by Larsen and Toubro Ltd (L&T) and Tata Motors Ltd, FCCBs were used as sweeteners for investors who weren’t comfortable buying pure equity.

The Securities and Exchange Board of India (Sebi) mandates the minimum price at which an equity issue can be made, and this, at times, limits investor demand. L&T and Tata Motors circumvented this by offering a combination of pure equity and convertibles, with the latter being offered on generous terms to make up for the stiff pricing of the former.

Having said that, both these issues happened in October, and there haven’t been similar combination issues since. And, in any case, it’s not that all potential equity issuances have ended up as convertible issuances. Overall investor appetite has come down. This is also reflected in the secondary market, with the National Stock Exchange’s benchmark index, the Nifty, having risen by just 3% in the past three months.

Looking into 2010, a similar trend can be expected, since investors are still adopting a cautious approach. Even within convertible bonds, investors are being extremely particular about sticking with trusted names and companies where existing floating stock of convertible paper isn’t very high.