Volatile market takes toll on institutional placements

The volatile equity market has taken a toll on the number of qualified institutional placements (QIPs) hitting the market this year.

According to data sourced from Prime Database, the value of QIPs that hit the market till August this year amounted to Rs 12,895 crore compared with Rs 25,924 crore in the corresponding period last year. The amount raised this year, however, is higher than that raised in calendar years 2011 (Rs 3,459 crore), 2012 (Rs 4,704 crore) and 2013 (Rs 8,075 crore).

Experts suggest that high valuations and waning interest from institutional investors have led to the slowdown. "Just after the Modi government came to power last year a lot of companies rushed to raise quick money from institutional players, who were betting on a recovery in the Indian economy. This year the market has turned volatile and institutional interest has waned, which is why QIPs have dried up," said Dara Kalyaniwala, VP - investment banking, Prabhudas Lilladher Capital Markets.

The benchmark BSE Sensex has shed 6.8 per cent in the year to date compared with gains of 30 per cent in calendar year 2014.

Banks and financial services firms have mopped up the most by way of institutional placements this year, garnering a little more than Rs 8,000 crore. IndusInd Bank collected the most (Rs 4,327 crore) followed by HDFC Bank (Rs 2,000 crore) and Bajaj Finance (Rs 1,400 crore).

A number of infrastructure and real estate companies have also tapped the market. These include Ashoka Buildcon (Rs 500 crore), IRB Infrastructure Developers (Rs 440 crore), and Hindustan Construction (Rs 400 crore). Last year, too, a number of banks had tapped this market. These included SBI (Rs 8,031 crore), YES Bank (Rs 2,942 crore), Karur Vysya Bank (Rs 624 crore) and City Union Bank (Rs 137 crore).

"Banks need growth capital every two years, given the strong growth prospects. So do the capital-intensive infrastructure and real estate businesses," said V Jayasankar, senior executive director, Kotak Investment Banking. "There was more of a pressing need to raise capital in 2014 since companies in these sectors had not raised money in the previous two-three years. That's also one reason why fund raising through QIPs in 2014 was higher."

QIP is an alternative mode of resource raising available for listed companies to raise funds from the domestic market. In a QIP, a listed issuer issues equity shares or non-convertible debt instruments along with warrants and convertible securities other than warrants to Qualified Institutional Buyers only.

QIPs are done for various reasons, including raising capital for expansion, restructuring of balance sheet and meeting working capital needs.