Fund raising through equity and debt routes down 20 per cent to ₹11 lakh crore due to costlier credit route and volatile markets
Fund raising by companies through equity and debt routes is set to fall 20 per cent to around ₹11 lakh crore in 2022, as costlier credit routes and volatile markets dampen enthusiasm this year. The first half of 2023 may remain challenging.
The year 2021 was exceptional for fundraising through equity and debt routes, while 2022 has seen a slowdown in capital raising due to unprecedented inflation globally and high volatility due to the Russia-Ukraine war.
“The first half of 2023 could be challenging, largely driven by global macro developments. If the recession/recession in the US is mild, we may see a rally in global markets in the second half of next year, which will help. investor sentiment as well as the Indian market," said Vishal Chandirmani, Managing Partner Products & COO, Trustplutus Wealth (India) Pvt Ltd.
He added that even with the boom in the markets, raising money in the next few years would be more difficult than before.
In the past year, mobilization from debt markets has increased, while fresh capital mobilization through equity instruments has declined sharply as geo-political tensions resulted in lower IPO fundraising in 2022 as a result of volatile stock markets.
Debt market associations continued to contribute the lion's share of total fundraising activity this year.
Out of the cumulative ₹11 lakh crore till mid-December this year, a total of ₹6.92 lakh crore was raised from debt market, ₹1.62 lakh crore from equity market and ₹2.52 lakh crore from overseas route, data compiled by analytics major Prime Database showed .
In 2021, firms had raised ₹13.6 lakh crore, including ₹6.8 lakh crore through debt and ₹2.85 lakh crore through equity, setting a record ₹1.2 lakh crore from an initial public offering (IPO).
These data suggest that the climate in 2021 was highly attractive for fundraising activities and that the climate in 2022 showed a stark difference.
Chandiramani of TrustPlutus predicted 2022 to be a challenging year for domestic and global markets as compared to 2021. Inflation has risen globally which has led to central banks raising interest rates several times during the year.
This has pushed up borrowing costs and pushed up yields, resulting in one of the worst years for global bond markets in decades.
Besides, the equity markets globally have been volatile and mostly giving negative returns, he said.
Even in the private markets, there has been a sharp drop in fundraising and valuations are down 50-70 per cent from a year ago, said Kanika Agarwal, co-founder of Upside AI.
Nirav Karkera, head of research at Fisdom, said, "The year 2021 was a good year to refinance debt at low cost, raise fresh capital through debt at highly optimized cost as well as take advantage of happy valuations amid upbeat sentiments. "
In 2022, stimulus dried up, easy monetary policies began to reverse, rapid inflation became a global theme, the Russia-Ukraine war hurt global supply chains and there were myriad challenges to face, he said.
Fresh capital was raised by companies for debt payments, to fund capital expenditure for new projects, to support inorganic growth such as acquisitions, and also for marketing and research and development purposes.
Of the total ₹6.92 lakh crore raised through debt in 2022, ₹6.84 lakh crore came from private placements and ₹7,921 crore through public issues.
Vinod Nair, head of research at Geojit Financial Services, said the lack of liquidity and the low base of the interest rate cycle initially made the debt route cheaper for companies raising funds.
In the equity market, funds came mostly through preferential issue of equity shares, which is one of the fastest mechanisms for companies to rake in funds.
However, there was a sharp decline in fundraising through other equity avenues such as Qualified Institutional Placement (QIP), rights issue and IPO.
The IPO contributed over ₹59,000 crore, the QIP route added ₹11,743 crore, the Offer for Sale (OFS) segment contributed ₹8,342 crore and the rights issue of shares to existing shareholders contributed ₹3,817 crore.
Also, real estate and infrastructure investment trusts (REITs and InvITs) together raised ₹2,700 crore.
Fundraising through initial share sales halved to ₹1.2 lakh crore in 2021, the best IPO year in two decades.
Debt looks hugely attractive and will grow significantly — corporate and government debt will have high-yielding high-coupons, said Nikhil Kamath, co-founder, Zerodha, in 2023.
One can get FD rates up to 7.5 per cent and stock markets have traditionally given returns of around 8 per cent (with risk) per annum. If risk free investment
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