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Unless the still-evolving Omicron situation plays spoilsport, the next year is expected to be much more robust in terms of fund-raising activities and there seems to be no dearth of funds, experts said.
”The banks have been sitting on surplus liquidity for quite a while and there should be enough appetite for quality borrowers, said Ricky Kirpalani, Lead Sponsor, First Water Capital Fund.
In the year passing by, fund mobilisation through debt markets has fallen sharply, while the equity fund raising has been robust and the stock market bull-run with liquidity all-around has resulted in record fund-raising through initial public offerings (IPOs).
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Debt fund-raising has slowed because of long-term economic disruptions during the first wave of the coronavirus pandemic, followed by a prolonged impact of the ravaging second wave, said Sandeep Bhardwaj, CEO, Retail, IIFL Securities.
Out of the cumulative Rs 9.01 lakh crore garnered till mid-December this year, funds totalling Rs 5.53 lakh crore were mopped up from the debt market, Rs 2.1 lakh crore came from the equity market, Rs 30,840 crore through REITs and InvITs and Rs 1.06 lakh crore via the overseas route, data compiled by analytics major Prime Database showed.
In 2020, firms raised Rs 11 lakh crore, including Rs 7.91 lakh crore through debt and Rs 2.12 lakh crore through equity.
Explaining higher fund-raising through debt route in 2020, Samir Sheth, Partner and Head – Deal Advisory Services, BDO India, said that businesses came to a halt as a strict lockdown was imposed since March 2020 and to manage the adverse impact of the same, corporates resorted to debts.
He further said that the stock market was down for the most part of the year and PE/VC markets were also not that active, leaving businesses with few options other than a debt funding in 2020.
Fresh capital was raised by companies for debt payment, to fund capital expenditure for new projects, to support inorganic growth like acquisitions as also for marketing and R&D purposes, said Satyen Shah, MD & Head, Investment Banking at Edelweiss Financial.
While companies wanted to have the liquidity to tide over uncertainties related to the pandemic during 2020, it has been largely related to economic growth in 2021 and businesses are raising funds primarily to expand, Sheth said.
Of the total Rs 5.53 lakh crore raised through Indian debt markets in 2021, Rs 5.38 lakh crore came from the private placement and Rs 14,277 crore was through public issuance.
”Indian debt markets are mostly tapped by the financial sector companies who use funds for onward lending (as the economic cycle gathers pace) and boost capital buffers,” said Ajay Manglunia, Managing Director & Head – Institutional Fixed Income, JM Financial.
The non-financial bunch deploys the funds majorly for general corporate expenses, capital expenditure and capital for inorganic growth opportunities apart from refinancing existing debt, he added.
In the equity market, funds mostly came from initial share sales as ample global liquidity, robust equity market and massive equity participation pushed the IPO market to new levels this year.
Within the equity segment, the IPO route helped companies raise Rs 1.2 lakh crore, Qualified Institutional Placement (QIP) route added Rs 41,894 crore, rights issue of shares to existing shareholders accounted for Rs 27,771 crore, while Offer for Sale (OFS) through stock exchange mechanism contributed Rs 22,912 crore.
A total of 63 IPOs mopped-up record Rs 1.2 lakh crore, and Small and Medium Enterprise (SME) IPOs brought in Rs 710 crore.
In comparison, Rs 26,613 crore were raked in through 14 main-board IPOs, while Rs 159 crore came via the SME segment in 2020.
Buoyant stock markets and spectacular listing gains by some companies were the main factors driving the IPO frenzy, said Piyush Nagda Head-Investment Product at Prabhudas Lilladher.
IIFL Securities’ Bhardwaj believes that bullish trajectory will continue in 2022 also for the IPO market and the new year might see a new record level of funds raised while the mega initial share-sale of LIC is also in the pipeline.
Apart from public issues, equity fund-raising through QIPs dropped to Rs 41,894 crore in 2021 from Rs 84,509 crore last year, primarily on account of availability of cheaper debt and expectation of high valuations due to rising markets making promoters hesitant to dilute.
Another reason for the decline in QIPs fund-raising could be expectations of a further rise in stock markets as the markets were constantly rising from the beginning of the year till mid-November.
The number of QIPs in 2021 has been higher than the last year, but the quantum has been relatively lower.
Going forward, First Water Capital Fund’s Kriplani said that the fund collection through QIPs may pick up as the capex cycle is now reviving and valuations are rich.
Funds mobilised through the rights issue mode also plunged to Rs 27,771 crore in 2021 from Rs 64,984 crore last year. Bharati Airtel contributed a major chunk with its Rs 21,000 crore rights issue this year.
The year 2020 had seen the largest ever rights issue of Reliance to the tune of Rs 53,000 crore, making this year look pale in comparison.
However, funds collected via the OFS route — used for dilution of promoters’ holdings — rose to Rs 22,912 crore this year, from Rs 20,901 crore in 2020.
In addition, firms took infrastructure investment trusts (InvITs) and real estate investment trusts (REITs) mode for raising funds and raked in Rs 32,125 crore in the year passing by, lower than Rs 38,109 crore mobilized in 2020.
Apart from the domestic route, funds totalling Rs 1.06 lakh crore have been raised through overseas bond markets and foreign currency convertible bonds (FCCBs), much lower than close to Rs 68,000 crore collected last year.
Going ahead, experts believe that a robust funding scenario for Indian firms will continue into 2022 for the equity as well as debt routes.
”Considering the strong liquidity, Covid situation being under control, positive corporate earnings outlook and overall India growth story. We expect investors to continue to look at funding Indian firms,” Shah of Edelweiss Financial Services said.
According to BDO India’s Sheth, barring any large economic impact of Omicron, overall economic growth and significant funding scenario for Indian firms will continue into 2022.
With regards to debt, IIFL Securities’ Bhardwaj believes significant fund-raising through debt is likely to happen in the next few quarters as the economy is back on track and private capex plans picking up.