Listed companies are going slow on raising money via qualified institutional placements (QIPs) as a volatile stock market curbs investor appetite.

Since January, 17 firms have raised around 6,212 crore via QIPs, with HDFC Bank Ltd alone raising 2,000 crore of that amount. The figure for last year was 31,684 crore, raised by 32 firms. Also, the average size of QIPs so far this year is a little under 400 crore, less than half of last year’s average of 1,000 crore.

Companies that announced plans for QIPs, but haven’t hit the market yet, include prominent names such as Hindalco Industries Ltd, a part of the Aditya Birla Group, JSW Steel Ltd, the country’s third largest producer of the alloy, and the nation’s largest lender State Bank of India (SBI). Hindalco, JSW Steel and SBI had plans to raise 3,000 crore, 4,000 crore and 15,000 crore, respectively.

“It does seem like the QIP window is closing," said an investment banker working with a domestic bank, who did not wish to be named, as he is not authorized to speak to the media. “The way markets are going, it is very difficult for companies to raise money and most of the companies which needed to raise money have already done so. Only good-quality companies will be able to raise money here on."

QIPs are sales of shares, or other securities convertible to shares, by listed firms to qualified institutional buyers. Firms favour them for raising capital, as they don’t involve the elaborate regulatory procedures that they need to follow in other fund-raising exercises.

Last year, 110 listed Indian firms announced plans to raise about 1.18 trillion through QIPs, according to data available from Prime Database, a primary market tracker, and stock exchange filings. Finally, 32 firms actually went ahead with placements.

The QIP rush of 2014 was sparked by a surge in the benchmark BSE Sensex, which climbed almost 30% during the year, mainly due to a sense of euphoria in the run-up to and after the Bharatiya Janata Party’s rise to power under Narendra Modi, who is seen as a pro-market, pro-business leader. In 2015, the Sensex has risen just 0.68% since January. In the past month alone, the Sensex has seen several sessions involving movements of over 500 points a day—three of them down and two up.

Concerns over a tax dispute between the government and foreign investors and worries about the slow pace of corporate earnings growth have clouded investor sentiment towards India, Asia’s second-worst performing equities market this year, after Indonesia.

Bankers say they are seeing a decline in new mandates for QIPs. So far in 2015, only 20 companies have announced their intention to raise money through QIPs, data from Prime Database shows. “Activity in terms of new QIP mandates has slowed down," said Vikas Khemani, president and chief executive at Edelweiss Securities.

A volatile market makes pricing of the issuance a major problem and price is one of the biggest factors for investors to enter a stock through the QIP route. Market volatility is forcing firms to hold back issuances.

“QIPs get priced at a discount or close to the market price. In a volatile market, the Securities and Exchange Board of India-mandated minimum price could end up at a discount one day and at a premium the next, in relation to the market price. So people will find it hard to get investors on board in such a market," said Venkatraghavan S., director at IDFC Securities Ltd.

Unless firms are really desperate to raise capital, they would look at waiting out the volatility before launching QIPs, Venkatraghavan added.

Most of the QIPs launched this year were offered at a 4-9% discount, depending on the firm’s urgency to raise capital and the need to make the issue attractive for investors.

“QIP is basically a bull market instrument and it is also more of a trading instrument than an investment one. It makes sense to enter through a QIP when the markets are rising as QIPs offer a discount to the market price," said Prithvi Haldea, chairman of Prime Database Group.

Also, promoters would not like to dilute their ownership by launching a QIP at a time when prices are low and markets volatile. “There is a limitation of appetite to raise capital through QIPs as it involves dilution of promoter’s stake. It is not a regularly used instrument because of this reason," Haldea added.

Most of the 110 firms that announced QIP plans last year were either public-sector banks or belonged to the infrastructure sector.

“The sentiment for infrastructure companies is a little subdued as compared to last year. We are expecting QIPs to start coming in from next month as prices look attractive for some sectors," said Girish Nadkarni, managing director, investment banking, Motilal Oswal Investment Advisors Pvt. Ltd.

Infrastructure firms with exposure to road assets did manage to raise a part of the capital for which they had taken approval.

Over the past two months, four infrastructure firms with significant exposure to the road sector have raised 1,440 crore via QIPs. These include Ashoka Buildcon Ltd, Hindustan Construction Co. Ltd, IRB Infrastructure Developers Ltd and Supreme Infrastructure India Ltd.

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