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Fund mobilization through equity, debt routes down 20 percent to Rs 11 lakh crore in 2022

Fund mobilization by companies through equity and debt routes has dropped 20 percent in 2022 to nearly Rs 11 lakh crore, as exuberance dwindled this year due to expensive credit avenues and volatile markets. The first half of 2023 could continue to remain challenging. The year 2021 was extraordinary for fundraising from the equity and debt routes, while 2022 has seen a slowdown in capital raising owing to elevated volatility provoked by unprecedented inflation globally and the Russia-Ukraine war.

“The first half of 2023 could continue to be challenging, largely driven by global macro developments. If the slowdown/recession in the US is mild, then we could see a rally in global markets in the second half of next year, which would aid investor sentiment and the Indian markets as well,” said Vishal Chandiramani, Managing Partner Products and COO, TrustPlutus Wealth (India) Pvt Ltd. Even with a bounce back in markets, it will be more difficult to garner funds over the next few years as compared to earlier, he noted.

In the year passing by, mobilization from debt markets has inched up, while fresh capital mop-up through equity instruments has sharply fallen as volatile stock markets triggered by geopolitical tensions resulted in IPO fundraising halving in 2022. Debt market mobilization continued to contribute a lion’s share to the overall fundraising activity this year.

Out of the cumulative Rs 11 lakh crore garnered till mid-December this year, funds totaling Rs 6.92 lakh crore were mopped up from the debt market, Rs 1.62 crore came from the equity market, and Rs 2.52 lakh crore via the overseas route, data compiled by analytics major Prime Database showed. In 2021, firms had raised Rs 13.6 lakh crore, including Rs 6.8 lakh crore through debt and Rs 2.85 lakh crore through equity, which constituted a record Rs 1.2 lakh crore from initial public offerings (IPOs). These figures suggest that the climate in 2021 was highly attractive for fundraising activities and the 2022 environment exhibited a stark difference.

TrustPlutus’ Chandiramani described 2022 as a challenging year for domestic and global markets as compared to 2021. Inflation has spiked globally which has led to central banks raising interest rates multiple times during the year. This has increased the cost of borrowing and pushed up yields, resulting in one of the worst years for global bond markets in decades.

In addition, equity markets globally have been volatile with most giving negative returns, he added. Even in private markets, fundraising has slowed down drastically and the valuations are down 50-70 percent from a year ago, said Kanika Agarwal, co-founder, Upside AI.

“The year 2021 was a good one to refinance debt at lower costs, raise new capital through debt at highly optimized costs as well as avail happy valuations amid upbeat sentiments,” said Nirav Karkera, Head of Research at Fisdom.In 2022, the stimulus dried up, easy monetary policies started to reverse, runaway inflation became the global theme, the Russia-Ukraine war bruised global supply chains, and along came a myriad set of challenges, he added.

Fresh capital was raised by companies for debt payment, to fund capital expenditure for new projects, to support inorganic growth like acquisitions, and also for marketing and R&D purposes. Of the total Rs 6.92 lakh crore raised through debt in 2022, Rs 6.84 lakh crore came from the private placement and Rs 7,921 crore via public issuance.

A paucity of liquidity and a low base of the interest rate cycle initially made debt routes cheaper for companies raising funds, said Vinod Nair, Head of Research, Geojit Financial Services. In the equity market, funds mostly came via the preferential issue of equity shares, which is one of the fastest mechanisms for companies to rake in funds.

However, fundraising through other equity avenues such as Qualified Institutional Placement (QIP), rights issues, and IPO saw a drastic decline. IPOs accounted for over Rs 59,000 crore, the QIP route added Rs 11,743 crore, the Offer for Sale (OFS) segment contributed Rs 8,342 crore, and rights issue of shares to existing shareholders accounted for Rs 3,817 crore. Also, real estate and infrastructure investment trusts (REITs and InvITs) together raked in Rs 2,700 crore.

The fundraising through initial share sales halved from Rs 1.2 lakh crore in 2021, which was the best IPO year in two decades. Going into 2023, Nikhil Kamath, co-founder of Zerodha, said debt is looking extremely enticing and it will grow significantly — corporate and government debt will have higher coupons, giving higher yields.

One can get an FD rate of as high as 7.5 percent and stock markets have traditionally returned around 8 percent a year (with risk). If risk-free investment — debt — can generate a yield close to that, the arbitrage between the two is getting smaller, he added. On the impact of the new Covid variant on fundraising, Upside AI’s Agarwal said, the markets now know how to react to variants. This looks like a “known” risk which is probably getting factored in. However, the Chinese government has been very opaque in its policy response so the lack of transparency may add a layer of risk if it causes further supply chain disruptions, she added.

Eqwires Research Analyst

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NSE Social Stock Exchange: All you need to know; What it is, how will it work, what securities will list on it

The National Stock Exchange (NSE) received approval from the Securities and Exchange Board of India (SEBI) to set up a Social Stock Exchange (SSE) as a separate segment on Thursday, December 22. Through the SSE, non-profit organizations (NPO) can now list on the NSE and raise funds. In the Union Budget 2019-20, Finance Minister Nirmala Sitharaman proposed the creation of SSE for listing social enterprises and voluntary organizations, so they can raise funds through equity, debt, and units like Mutual Funds. The NPOs will issue Zero Coupon Zero Principal (ZCZP) securities to raise funds. Currently, the prescribed minimum issue price is Rs 1 crore and the minimum application subscription size is Rs 2 lakh. According to NSE, trading is not permissible in ZCZP, but it can be transferred for other purposes, such as transfer to legal heirs.

“NSE has always played a pivotal role in capital formation for the country. We are working towards the launch of the Social Stock Exchange as a segment on NSE. We believe this platform will immensely benefit the social enterprises contributing to the Sustainable Development Goals,” said Shri Ashishkumar Chauhan, MD & CEO, NSE.

What is a Social Stock Exchange (SSE)?
Social Stock Exchange will help Social Enterprises to raise funds from the public via the stock exchange mechanism. It will enable fund providers to filter entities or non-profit organizations creating a noticeable social impact.

What is a Social Enterprise?
Social Stock Exchange identifies non-profit organizations and for-profit organizations as social enterprises. To be recognized as a social enterprise, organizations need to demonstrate that 67% of their activities have targeted underserved or less privileged population segments or regions that have recorded lower performance in the development priorities of central or state governments, apart from other regulations.

Who can invest in securities issued by Social Enterprises?
Institutional and non-institutional investors can invest in the securities issued by social enterprises while retail investors are allowed to invest only in securities issued by for-profit social enterprises. According to NSE, foreign investors are currently not allowed to invest through the SSE.

Eqwires Research Analyst

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Bandhan Bank shares fall over 6% on receiving Rs 801 crore binding bid for the sale of stressed assets

Bandhan Bank shares fell over 6% to Rs 228.40 on Thursday after the bank informed stock exchanges that it has received a binding bid of Rs 801 crore from an Asset Reconstruction Company (ARC) for its written-off portfolio. The bank received the offer on a security receipts consideration basis, for the written-off portfolio with an outstanding of Rs 8,897 crore. The bank said, “it shall go for bidding as per the Swiss challenge method and the decision of sale shall be taken as per extant guidelines governing the Swiss challenge method and the relevant policy of the bank.”

Bandhan Bank shares opened at Rs 247.30, over 1% up from its previous close. The shares were trading at Rs 13.40 down from Rs 229.65. Its shares touched a 52-week high of Rs 349.50 on May 17, 2022, and a low of Rs 209.45 on November 22, 2022. It has fallen more than 9% in the past year and over 18% in the last six months. At the current market price, it has a total market capitalization of Rs 36,992.61 crore. It touched an intraday low of Rs 223.55 and a high of Rs 248.65. On Wednesday, the company’s shares closed at Rs 243.05.

During the second quarter of the current fiscal, the bank wrote off microfinance loans (mostly group loans) worth around Rs 3,500. Its net profit for the second quarter of FY23 fell 76% on a quarter-on-quarter basis due to higher provisions as it wrote off microfinance loans. The bank reported a net profit of Rs 209.3 crore during Q2FY3, compared with a net profit of Rs 886.5 crore in the previous quarter. At the end of the second quarter of the current fiscal, the bank’s gross non-performing assets (NPAs), in absolute terms, stood at Rs 6,853.85 crore, witnessing a fall of 21.79% year-on-year.

Eqwires Research Analyst

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