Debt Market Takes The Centrestage

During the same period last year, only about Rs 800 crore was raised through debt issues, according to reliable industry estimates. This year the debt market appetite is even greater with Rs 20,000 crore likely to be mobilised, say experts. More-

over, permission to foreign institutional investors to have 100 per cent investment in debt issues is expected to boost the market further.

A survey conducted by Business Standard showed that Rs 10,629.63 crore was raised by 20 top financial institutions and corporates during January-August 1996. Market sources peg the total collections through debt instruments in the period at over Rs 12,000 crore.

Even this figure is expected to go up after the ongoing Tisco bond issue and forthcoming debenture issues of L&T and Arvind close. IDBI's proposed Rs 1,000-crore bond issue with a greenshoe option in October will further fuel the growth of the debt market, say analysts.

The extraordinary surge has come because investors have switched from equities to debt, say experts. J M Financial

president M R Mondkar says: "The risk vis-a-vis returns ratio at present is tilted favourably towards the bond issues, as equities are more riskier".

Not that equity issues have completely fallen out of favour. A total of 1,189 issues (both public and rights), between January and August 1996, raised Rs 18,222 crore as compared to Rs 23,871 crore for the same period last year. Thus, while the debt issues witnessed a dramatic rise, equity issues fell during January-August 1996 compared to the same period of 1995.

Leading marketmen had predicted in July that corporates along with major financial institutions would mop up more than Rs 10,000 crore through debt instruments in the following six months. Says Kotak Mahindra COO Mark Silgardo: "It is difficult to place the exact amount to be raised through debt market instruments, however almost every corporate house is contemplating an entry into this sector."

Silgardo feels that in the next six months the primary markets will be flooded with a number of debt market issues; some in the form of bonds while some other corporates may take the debenture route.

Says Silgardo: "Bonds with a fixed return of about 16 per cent, works out as an attractive instrument for retail investors in the short term, even taking into account inflation at 10 per cent".

Explains S K Shelgikar of the Videocon group, the investors have been propelled towards bond issues because of primarily three factors. One, the quest for paper is very much there, more so because they have made losses in equities. Secondly, bonds seem to be an attractive instrument for hedging inflation and, thirdly, the storage of value for future needs has also led to sizable collection figures in "deep discount type" bonds.

Kotak Mahindra senior vice-president Shekhar Sathe, however, has an additional explanation: "It is not that debt issues are thriving at the expense of the equity issues. It was bound to happen anyway".

Sathe explains corporates would look to diversify their resource base and produce cheaper funding (thanks to high rates quoted by FIs ) and in order to reach their debt-equity ratio targets. More and more corporates, according to him, would be tapping the debt market in view of competition from domestic competitors as well as international trends.

According to market sources, while the first part of 1996 saw FIs short of funds, the latter part witnessed FIs willing to lend at competitive rates. "However, borrowing money from retail is much cheaper than that from institutions," said an official from a leading FI.

But is equity going to make a comeback? Shelgikar, for one, says, "Yes. Retail investors, when they realise that they are capping their yields without having the ensured bottom line, will again go back to equity".