Despite weak equity markets, a large number of companies are lining-up to raise equity to meet capital expenditure requirements as well as debt reduction in anticipation of a pick-up in long-term economic growth.
According to data from Prime Database, compiled by FE, issues of over Rs 2.5 lakh crore are in the pipeline over the next one year. This includes fresh offers worth Rs 16,000 crore, private placement in excess of Rs 1.8 lakh crore and the government’s record disinvestment plan.
Experts say there is enough appetite in the market to absorb such a large amount of fund raising but acknowledge that the current weakness in secondary markets could pose some challenges like lower valuations or postponement of the issue.
“There is enough demand if the valuations are right. We have seen large secondary block deals and primary issuances happening even in the current environment so there will be enough demand for a good company at a good price. Also, as markets have corrected one will see lower valuation expectations from the issuers,” said Dharmesh Mehta, deputy CEO, Axis Capital.
Benchmark indices have lost about 7-8% from their record high of January and companies that are willing to raise equity have seen their stock value drop in double digits.
“Companies may find it challenging to raise funds through the equity route if the secondary markets remain weak.
However, we do not foresee the quantum of fund raising as a big challenge because there is enough appetite in the market. More importantly, a large number of issuances is healthy for capital markets as it provides a lot of choice to investors,” said Ajay Arora, partner – transaction advisory services, EY (India).
Data showed banks leading the fund raising queue to meet Basel-III norms. Indian banks’ capital needs are likely to rise incrementally until the full phase-in of the Basel-III regime in FY19, with state-owned banks are at the heart of the problem, experts said.
SBI intends to raise about R15,000 crore through equity, while Bank of India, Central Bank of India, Punjab National Bank and IndusInd Bank have line-up to raise equity in the range of Rs 4,500-8,000 crore.
“We believe quality issues will see strong investor interest particularly in sectors such as banking, financial services, consumer and healthcare. Further, government disinvestments are eagerly awaited by the markets and typically have a positive and broad based impact on primary market sentiment,” said Gesu Kaushal, executive director, Kotak Investment Banking.
For Updates Check Stock Market News; follow us on Facebook and Twitter