During the bull-run from 2004 to 2007, companies parked a major part of their surplus money in equities, especially in their subsidiaries. And with markets reviving, companies are finding investing in equities even more profitable now.

An FE Research Bureau analysis of 1,421 companies whose balance sheets were available till October 5, 2009 shows that the share of equity in total investment increased to 50.8% in 2008-09 from 48.60% in 2006-07. On the other hand, the share of debentures and bonds in total investment decreased from 24% in 2006-07 to 17% in 2007-08 and further decreased to 16.96% in 2008-09.

The numbers also show that the growth of total investment of companies decreased to 32% in 2008-09 from 47.8% in 2007-08. On a positive note, the investment to asset ratio increased to 24.84% in the last year from 19.97% in 2006-07.

Says D R Dogra, MD & CEO, Credit Analysis & Research, ?Increase in investments to assets ratio in the current year can be partly attributed to reduced capex expenditure in view of the economic downturn.

Also, the increasing investment in equities can be due to corporates being less risk averse and investing in equities, including investment in group companies. The downturn in equity market had offered better valuation and scope for increasing intra group holdings.?

The sample companies invested Rs 2.58 lakh crore during 2008-09 in company equity shares against Rs 1.89 lakh crore in 2007-08. Companies invested Rs 0.86 lakh crore in debentures and bonds and Rs 0.79 crore in mutual funds.

Dogra adds, ?Investments in MFs are for a short term because of high risk and also due to internal liquidity drying up. After the Lehman collapse, many economies announced stimulus packages, thereby reducing interest rates, which had peaked by October 2008. These could have acted as a deterrent to invest in debentures, bonds and units during the second half of 2008-09.? The share of mutual fund units in total investment increased from 20.54% in 2006-07 to 25.44% in 2007-08 and decreased thereafter to 15.61% in 2008-09.

Kishore P Ostwal, CMD of CNI Research, explains that market had corrected substantially in 2008-09, making valuations very cheap. ?As a result, suddenly the dividend yield became more attractive than debentures/bond interest. It was the main reason. Besides, the valuations were low and promoters decided to buy back their own shares or shares of group companies. It made corporates to invest in shares more.? He adds that the sudden collapse of global economies meant that there were no opportunities to use spare funds for the purpose of business.

The FE research shows that a significant increase in investment of equities was seen in the case of Tata Steel, Hindalco Industries, Cairn India, Tata Motors, Suzlon Energy, DLF and Tata Communications.

The investment in equities of Tata Steel increased by 1245% to Rs 38,935 crore in 2008-09 from Rs 2,894 crore in 2007-08. It was due to the conversion of advance against equity to Tata Steel Holdings (included in loans and advances) and also on account of further contribution to the capital of Tata Steel Holdings in addition to the contributions to equity of some subsidiary companies in India.

There was more than 100% growth in total investment by 186 companies in 2008-09. The companies include Tata Steel, Reliance Communications, Tata Motors, HPCL, UTV Software, Ultra Tech Cement, JSL, National Aluminium, GSFC, Nirma and Essar Shipping Ports & Logistics.

In fact, 96 companies recorded an increase of more than Rs 100 crore in investments in 2008-09. The list included companies like IOCL, BPCL, Reliance Infrastructure, Bharti Airtel and Larsen & Toubro.

The top five among 1,421 major companies in terms of investment in 2008-09 were Tata Steel, IOCL, Reliance Communications, Cairn India and Hindalco Industries. The highest increase in investment was registered in the case of Tata Steel.

Out of 1,421 companies, 621 companies showed a rise in the investment-asset ratio during 2008-09. They included Tata Steel, Samtel India, Zuari Industries, Godrej Industries, Cable Corporation, HPCL, Rallis India and EID Parry. A reverse trend can be seen in the case of Dish TV, Thermax, Hind Unilever, Monsanto India, GlaxoSmithKline Pharmaceuticals, Eicher Motors and PTC India.

Among the industries under study, a significant increase in investment in 2008-09 was seen in the case of aluminium, automobiles, electric equipment, electronics, hotels, refineries, shipping, steel, sugar and telecommunications. The investment made by steel companies increased by 377% to Rs 50,891 crore during 2008-09 from Rs 10,656 crore in 2007-08. Among steel companies, apart from Tata Steel, JSL showed 861% increase in investment during 2008-09.

On the other hand, a significant decline in investment in 2008-09 was seen in the case of cigarettes, paper, personal care products, tea and tyres. The investment of cigarette companies decreased by 7% to Rs 3,249 crore in 2008-09 from Rs 3,496 crore in 2007-08.

In 2008-09, the top five industries in terms of investment were refineries, electricity, steel, telecommunications and automobiles. Among these industries, the highest increase was seen in the case of steel followed by refineries.

Further, a steady increase in investment growth during the last three years was seen in the case of electronics, hotels, petrochemicals, refineries, shipping, steel, paints and textiles. The growth in investment of textile companies increased from 10.8% during 2007-08 to 20.8% during 2008-09.

A steady decline in investment growth was seen in the case of 16 industries. These included cement, construction, electric equipment, engineering, entertainment, fertilisers, pharmaceuticals and electricity. The investment growth of cement companies decreased from 40% in 2007-08 to 4% in 2008-09.

In the case of investment-asset ratio during the last three years, a steady increase was seen in the case of aluminium, automobiles, chemicals, construction, gems & jewellery, electric equipment, shipping, sugar and telecommunications. The investment-asset ratio of telecommunication group increased from 13.52% in 2006-07 to 27.87% in 2007-08 and further increased to 31% during 2008-09.

On the other hand, a steady decline in the ratio was seen in the case of cigarettes, food products, paints, personal care and tyres. The investment-assets ratio of tyre companies decreased from 11% in 2006-07 to 7.90% during 2007-08 and further decreased to 6.33% in 2008-09.

The top five industries in terms of investment-assets ratio during 2008-09 were aluminium, tea, paints, automobiles and refineries. Among these significant increase in the ratio was seen in the case of refineries.