Rights, QIPs to dominate capital markets in H2 2020; IPOs to see muted activity

Activity in the initial public offering (IPO) market, on the other hand, is expected to remain largely dormant, with only a few high quality issuers tapping the markets.

In H1 2020, Indian companies raised ₹1.04 trillion from the capital market, according to Prime Database, helped largely by Reliance Industries ₹53,125 crore rights issue. Indian companies had raised ₹81,052.72 crore in the year-ago period, and another ₹45,233.41 crore during July-December 2019.

"From a ECM deal pipeline perspective, we are at a healthy place compared to where we were in March. There is a lot of liquidity in the market as seen by FII buying in the last few weeks. This shows that India is attractive to FIIs despite the concerns and the commentary around the covid-19 pandemic and its economic impact," said Mangesh Ghogre, executive director and head, equity capital markets at Nomura India.

While there has been a lot of activity in the rights issues, if markets continue to stay strong like it has in recent weeks, there might see more QIPs than rights issues going ahead, he added.

Even as the covid-19 pandemic has hit businesses across the majority of the industries, Indian financial services businesses have been seen to be more proactive in tapping the markets to raise funds as compared to other sectors with the exception of Reliance Industries Ltd. Lenders such as HDFC Ltd, Axis Bank Ltd, Mahindra Finance and Shriram Transport Finance Co Ltd have announced plans to raise funds, while others such as ICICI Bank Ltd are reportedly planning capital raising initiatives. Last month Kotak Mahindra Bank and JM Financial raised capital through their respective QIPs.

"Compared to global markets, Indian capital raising activity is somewhat focused on banks and NBFCs. While there is a potential requirement to strengthen balance sheets across sectors, many companies are still trying to assess the impact of the lock down before raising equity," said Suneet Weling, head of investment banking advisory, capital raising and financing at BNP Paribas.

Indian companies have been quicker than companies in other parts of Asia in raising capital during this crisis, he said.

Weling added that over the next few months, markets could see new themes like the resurgence of rural growth and demand emerging which could capture both issuer and investor attention.

Industry experts believe that fundraising activity will pick up after Q1 results, as investors will have clarity on the impact of the lockdown on company financials.

"We expect fundraising activity to pick up after June quarter results. A lot of investors have been waiting to see a full quarter impact of the pandemic on the financials and they hope to get a clearer picture when June results are out. Sectors such as pharma that have done well in the pandemic might be candidates to raise funds in the coming months," said Jabarati Chandra, partner at law firm S&R Associates.

Fundraise activity has also picked up in recent weeks on the back of markets regulator Securities and Exchange Board of India relaxing fundraising constraints for listed companies.

"The regulator has taken several steps in the last 2-3 months to make it easier for listed companies to access capital either from promoters, shareholders or other investors. These relaxations have been given to listed companies to tide over the strain brought by the pandemic," said Abhimanyu Bhattacharya, partner at law firm Khaitan & Co.

He, however, added that the current situation requires the regulator to be alert and agile to the funding needs of listed Indian companies and to that extent the regulator should continue to act swiftly to accommodate situations that require emergency funding.