India’s equity capital market is buzzing with fundraising activity, setting 2020 on course to become the best year on record for share sales. Easy liquidity and an uncertain future have prompted many companies to stock up on cash now rather than later, even as the larger economy creaks under the weight of the coronavirus pandemic.
This week alone, four companies launched share sales totalling over ₹26,000 crore, including mortgage lender HDFC Ltd and Axis Bank Ltd, which raised ₹14,000 crore and ₹10,000 crore, respectively. Apart from this, Indian companies have raised ₹1.32 trillion this year through fundraising routes such as initial public offerings, qualified institutional placements, follow-on public offers and rights issues, data from primary market tracker Prime Database shows. The previous record was set in 2017 when firms raised ₹1.66 trillion via equity capital market instruments.
With companies such as ICICI Bank Ltd, UTI Asset Management and Phoenix Mills Ltd collectively planning share sales of ₹18,000-19,000 crore and several others waiting in the wings, the final count is expected to be higher.
“India Inc. is raising equity in this period of uncertainty in which the extent of the economic fallout of covid is unknown. Companies are raising equity to build liquidity buffers to absorb any further shocks in the economy,” said Anuj Kapoor, managing director and head of investment banking at UBS India.
Kapoor added that through these efforts, firms are positioning themselves to capitalize on market opportunities, both organic and inorganic, should growth return next year. “In short, the constructive market backdrop has encouraged companies to seize the opportunity and raise capital now rather than wait until they need it,” he said.
“There is enough liquidity with both foreign and domestic investors. We expect significant fundraise in the next few months,” said Sachin Chandiwal, director-investment banking, IDFC Securities.
Foreign investors, flush with liquidity unleashed by global central banks, have shown strong interest in lapping up equities in emerging markets. In July, FIIs were net buyers of Indian equities worth $1.15 billion.
“There has been a deluge of liquidity pumped into the developed world by central banks. Indeed, the Fed has made more money available over the last six months than it did over the previous decade,” said Kapoor.
Despite the tsunami of equity issuance in India this week, Kapoor said the market will continue to see a strong bid for high-quality issuers, even as domestic funds have tapered off over the last month. “In the near term, we expect strong liquidity flows from foreign and domestic investors, although the US polls in November may dampen the pace,” he said.
Still, besides Reliance Industries Ltd’s ₹53,125 crore rights issue, fundraising activity has been dominated by the financial services industry. Broader participation from other sectors is yet to be seen.
“We expect the trend to continue in the coming months as more BFSI (banking, financial services and insurance) players, including public sector banks, seek to shore up their capital bases. Capital adequacy levels are being increased to allow non-performing assets to be absorbed especially once the moratorium ends at the end of this month,” said Kapoor.
IDFC’s Chandiwal said in addition to BFSI, sectors such as pharma, chemicals, IT can also see potential fundraising activity in the coming months.