Companies plan to benefit from the high inflow of foreign funds.
The equity capital market is set to see its highest quarterly fund raising ever in January-March next year as public and private sector companies plan to tap investors to benefit from the high inflow of foreign funds.
The figure next quarter, according to Citi Global Markets, may be as high as Rs 70,000 crore, though the projections of fellow investment bank Kotak Mahindra Capital Company and research house Prime Database are more tempered at Rs 33,000 crore and Rs 30,000 crore, respectively.
The previous highest equity and equity-linked fund raising – initial public offers (IPOs), follow-on public offers (FPOs) and qualified institutional placements (QIPs) — in a quarter was Rs 26,123 crore in April-June 2007, according to Prime Database.
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“The state of the secondary markets, the government’s resolve to speed up divestment at the right price, and timely approval of offer documents may lead to a record quarter in the Indian capital markets,” said Prithvi Haldea, Prime’s chairman and managing director.
Foreign institutional funds, which posted a net outflow of $3 billion in the first three months of 2009, saw net inflow of $17 billion in the following months as stimulus packages by governments around the world increased liquidity.
“We are in sweet spot today as capital is available to Indian companies across products, markets and formats,” said Ravi Kapoor, managing director and head of South Asia, Capital Markets Origination, at Citi Global Markets, explaining how abundant liquidity was helping companies raise capital at attractive interest rates through equity, equity-linked products, and local and international bonds. “Globally, stimulus packages may get phased out over a period of time which could impact liquidity,” he said, underlining the need for companies to assess their capital needs and plan raising of funds.
Citi Global Markets was involved in 23.9 per cent – more than anyone else — of the Rs 53,080 crore raised by Indian companies this year through IPOs and QIPs, according to data compiled by Bloomberg. The investment bank says a large amount of capital is planned to be raised by real estate and power generating companies. And there is also the Rs 25,000 crore that the Indian government plans to raise by selling equity in public sector units.?
“Given that interest rates overseas are likely to remain low and the dollar under pressure, foreign flows are expected to continue in our markets in the coming quarter,” said Kapoor.?
According to Prime, 60 companies have already filed applications with capital markets regulator the Securities and Exchange Board of India (SEBI) to raise Rs 40,000 crore through IPOs and FPOs. Another 100 have announced plans to raise Rs1,00,000 crore through QIPs. This will be spread over many months, but the next quarter may account for a large chunk of it.
“We are already witnessing multiple issuances in a week,” said S Ramesh, chief operating officer, Kotak Mahindra Capital Company, which advised Godrej Properties, JSW Energy and DB Corp for their IPOs of Rs 498 core, Rs 2,700 crore and Rs 385 crore – all three of which closed this week. He attributed his comparatively conservative estimate of Rs 33,000 crore to be raised in the next quarter to the fact that pricing was the key to large issues.
The issuance window in the domestic capital markets has been active since May this year. In spite of this, the secondary market has performed well. “Still, it would not rock the boat but have only a small impact on the secondary market,” said Ramesh.
This year funds were raised mostly to reduce debt on balance sheets. The fund raising in the near future, on the other hand, will be intended to raise growth capital.
