Fund raising via QIPs hit by volatile markets, economic slowdown

By: | Published: December 14, 2016 6:41 AM

Barring Rs12 crore raised by Sundaram Multi Pap, there has been no QIP offer in 2016 so far after September

Volatile markets and a general slowdown in the economy have dampened fund raising through the qualified institutional placement (QIP) route in 2016. The amount raised through QIPs in 2016 stands at Rs 4,480.52 crore, the lowest since 2012.

In CY 2015, companies raised Rs 24,064 crore and in 2014, Rs 31,684 was raised through QIPs, data from PrimeDatabase revealed.

Fund raising through QIPs had picked up in September 2016 on the back of a strong rally in markets. In September, six companies had raised Rs 3,672 crore through QIPs, the highest in 2016. Motherson Sumi Systems’ Rs 1,993-crore sale, which was the biggest QIP in 2016, came in September. However, this trend could not be sustained further; barring R12 crore raised by Sundaram Multi Pap, there has been no QIP offer in 2016 so far after September. Though the benchmark BSE Sensex rose 21% since the Union Budget’s presentation on February 29 till September end, it has risen only 2.2% from the beginning of 2016 till date.

The fact that the aggregate revenue growth of a sample of 2,558 companies grew at less than 5% in the quarter ended September 2016 against a 5.6% growth in the previous quarter indicates that companies do not have the necessity to raise fresh capital. A market participant, requesting not to be named, said capital spending is yet to begin, the capital requirement is not immediate unless companies establish new plants or trim debts from the books.

Moreover, the surge in fund raising through bonds also weighed on the fall in QIP issuance. Market participants said that it has been cheaper for companies to borrow via bonds for some time now, rather than through equity market, as the yield on an AAA-rated one-year paper is about 190 basis points lower than the lowest marginal cost of the funds-based lending rate in the market.

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