Home / Market / Stock-market-news /  Quarterly primary market capital raising hits lowest in a decade

Mumbai: Indian firms outside government control raised the least amount of capital in a decade from the primary markets in the December quarter as their confidence in an economic revival continued to wane.

Funds raised by the private sector from the primary market in the December quarter was the lowest since March 2003, data from the Centre for Monitoring Indian Economy (CMIE) show. For the quarter ended 31 December, the private sector, including both publicly traded and privately held firms, raised 1,306.8 crore.

Companies raised 1,618.95 crore of equity by way of initial public offerings (IPOs) in 2013, the lowest since 2004, according to data from Prime Database, a Delhi-based primary market data provider.

Analysts say the corporate sector is grappling with the uncertain economic situation in the country and many have put investment plans on the back-burner. Firms are also increasingly resorting to alternative sources of funding like debt issuances and mezzanine funding. Mezzanine funds typically invest in debt instruments with a small exposure to equities.

The funds raised in the December quarter of 2013 dropped around 89% from the year ago, the CMIE data shows. Compared with December 2008, when the global economy was bearing the brunt of the US subprime crisis, this is a fall of around 44%.

In the year ended 31 March, the economy grew by a dismal 5%, the lowest in a decade. For 2014, forecasts have been showing the same picture, some even worse. The International Monetary Fund (IMF) in its World Economic Outlook report released on 8 October forecast India’s growth will further fall to 4.25% in 2014. The general election that is due by May has caused further uncertainty.

“There is an apparent lack of confidence among corporates in the current environment for making any substantial capital commitment to businesses. In the short run, companies are in a wait and watch mode for certainty to emerge from the chaos," said Siddharth Shah, partner, Khaitan and Co., a legal and financial advisory firm.

For any immediate capital needs, firms with reasonably good balance sheets are veering towards mezzanine or debt financing, as even on the investor side there is relatively greater appetite for this as compared with taking equity exposures, Shah added. In 2013, 24 firms raised 24,285.5 crore through bonds and non-convertible debentures (NCD), according to Mint research. In comparison, 16 firms raised 23,365 crore in 2012. An NCD cannot be converted into equity shares of the company.

“The data indicates Indian corporates are still not so hopeful about the future and are sticking to short-term financing," said Rajiv Vaid, chief operating officer at Daiwa Capital Markets India Pvt. Ltd. “If you look at this along with the dismal 2-3% participation by retail customers, it clearly demonstrates the animal spirits have given a miss to capital markets. It’s a wake-up call." Some firms which raised capital through rights issue during 2013 include Godrej Properties Ltd, Reliance Mediaworks Ltd, Bhushan Steel Ltd and Kesoram Industries Ltd.

The slump in the primary market activity will continue for some time, analysts say.

India’s growth will be crucial for the health of the primary capital markets as they directly impact growth and investment cycles of most sectors, said V. Jayasankar, senior executive director and head of equity capital markets at Kotak Mahindra Capital Co. Ltd.

“Economic growth needs to pick up significantly from the current low base of 4.8% for the primary markets to recover. Investors and issuers are also awaiting policy reforms and regulatory clarity in sectors like infrastructure. The urgency being shown by government to clear projects awaiting clearances can also be helpful for the recovery of primary markets in the medium term,“ he added.

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