Equity raising? India Inc in wait-and-watch mode for now

Equity capital raising by Indian Inc has hit a pause button in October, after five months of robust activity. According to Bloomberg data, only Rs 530 crore or Rs 5.30 billion, through three deals, has been raised so far this month.

That compares to a monthly average of Rs 6,300 crore or Rs 63 billion for equity capital raising in the nine months of January to September. Investment bankers said deal making took a temporary beating on account of increased market volatility and trading holidays.

Not even a single company launched an Initial Public Offering (IPO), barring Momai Apparels’ issue on the National Stock Exchange’s SME (small and medium enterprises) platform, in October.

On qualified institutional placement (QIP), the preferred route of fund raising for listed companies, only DCB Bank and Sadbhav Engineering managed to raise money, of Rs 250 crore or Rs 2.50 billion each.

The average number of deal sizes in each of the first nine months of 2014 was more than eight, compared to three in October.

Bankers said some deals, especially QIPs, had to be put off due to pricing issues, owing to sudden volatility.

The Indian market had fallen nearly five per cent from record highs in early September, amid a sell-off by foreign institutional investors (FIIs).

Investor sentiment had turned weaker due to global economic slowing, with the US and some key European markets declining a little more than five per cent earlier this month.

India’s benchmark indices have remained flat so far this month but are off their peaks of early September.

Experts said equity raising was also hampered due to flight of capital from foreign investors. FIIs have sold more $500 million (Rs 3,200 crore or Rs 32 billion) in October.

This, experts said, was on worry on the imminent end of the US Federal Reserve’s bond buying programme.

Investment bankers say they aren’t troubled by the drop in fund raising seen in October, since investor appetite towards Indian equity offerings continues to remain healthy.

“The sentiment remains positive."

"Capital raising is expected to resume soon. Beginning next year, we will once again see a lot many deals happening,” said Vinay Menon, managing director, equity capital markets, at JPMorgan India. K Sandeep Nayak, executive director at Centrum, which recently helped Adlabs Entertainment do a pre-IPO placement, attributed the decline to the six trading holidays in October.

“The market is holding up well.

This will help fund raising. One shouldn’t read too much into the drop,” he said. Market players' equity capital raising activity is expected to again pick up in November, when the central government is expected to begin its disinvestment programme. Traditionally, December is also considered a light month for capital market activity, as most foreign investors go on a holiday.

Investment bankers said stability in the secondary market and a steady stream of capital flows from FIIs are critical for equity capital raising.

Contrary to 2014 when the bulk of capital raising was done by listed companies to repair their balance sheets, experts said next year's fund raising will be largely for investment activity.