Firms from India's western region lead fundraising spurt from stock market

Accounts for 97% of over Rs 75K crore raised via 19 issuances so far in FY21

Companies from the Western region of the country are raising almost all the money from the stock market, a result of the huge rise in concentration after the pandemic outbreak.

Companies raised Rs 75,159 crore through public and rights issues since the beginning of the financial year on April 1, according to data from the Securities and Exchange Board of India’s (Sebi’s) monthly bulletin. There have been 19 issuances in 2020-21, compared to 39 in the previous year. The private sector accounted for all of the capital raised during the period, showed Sebi data. 

However, none of the money raised came from the Central region. Companies in the East had only a 0.11 per cent share, while the North accounted for 0.42 per cent, and the South for 2.02 per cent.

The remaining 97.46 per cent came from the Western region. This is higher even than the same period last year. Then, companies had raised Rs 59,453 crore, and the West had a 50.46 per cent share. The North had accounted for 45.04 per cent, the South had a 4.5 per cent share, and the Central and Eastern regions were at zero.

Many Eastern and Central states have lower per capita income and growth. Another reason for their underperformance could be access to financial services and development, which was discussed in an article titled ‘Drivers of Credit Penetration in Eastern India’, published in the October 2019 Reserve Bank of India Bulletin.

“Access to financial services, in particular credit, is a well-established harbinger of economic prosperity...Southern and Western regions have witnessed relatively stronger penetration of credit, with credit to deposit (CD) ratio of 93.2 per cent and 90 per cent, respectively, as at end-March 2018, coinciding with higher per capita income and relatively better levels of industrialisation. The Eastern area...especially the North-east, (with CD ratio of 44.1 per cent and 41 per cent, respectively) clearly lag behind, coterminous with their lower per capita income and weaker industrial base,” said authors Raj Rajesh and Anwesha Das from the Department of Economic and Policy Research, Kolkata.

Piyush Garg, chief investment officer at ICICI Securities, said a large number of financial institutions had raised capital recently. This was to create a buffer against any stress arising from the pandemic-induced slowdown. Many are headquartered in Maharashtra or Gujarat. “That may have tilted the (scales),” he said.

The regional concentration could also reflect the concentration of economic activity in the country, said Mehul Savla, director of boutique investment bank RippleWave Equity. Many parts of the country still lack a significant manufacturing base and the kind of large corporate groups that could tap the equity markets. “The level of industrialisation is relatively low,” he said.  

He added that stock markets also face challenges of liquidity. Regional stock exchanges, located in different states, when they existed, often had thin trading volumes. The creation of national exchanges pools all the liquidity together. This makes it easier for companies to tap them for capital. Investors, too, can buy and sell shares without difficulty, according to him. The use of technology allows investors and companies to tap the stock market equally at the national level, said Savla. Both the National Stock Exchange and the BSE are located in Mumbai.