Equity fund-raising through qualified institutional placements (QIPs) and rights issues declined to the lowest level since 2016, stated a report by Business Standard, adding that the same can be attributed to a dull market environment and a lack of need for growth capital.
Companies raised ₹11,743 crore through QIPs this year while they raised ₹4,052 crore through rights issues, according to the report.
“QIP is directly linked to the markets. Volatility in markets makes it difficult to price a transaction,” Pranjal Srivastava, partner, investment banking, Centrum Capital, was quoted as saying in the report.
Though the benchmark Sensex has gained 4.9 percent, the market has been volatile for much of the last one year.
“Robust fundraising through rights, or the lack of it, is more linked to company-specific requirements. And whether the promoter has the money to fund the issue,” said Srivastava.
Investment bankers told BS that the sentiment was more bullish last year which encouraged companies to go ahead with their fundraising plans. However, things have been different this year with market volatility and capital turning scarce.
Institutional investors prefer to invest in a QIP when the market is moving up, noted the report, adding that volatility does the opposite. This is because QIPs are typically priced closer to the prevailing market prices which implies that investors may suffer losses in a weak market, it added.
In 2020 and 2021, companies had raised ₹80,816 crore and ₹41,997 crore, respectively, through QIPs while they raised ₹64,983.57 and ₹27,770 crore through rights issues, respectively, informed the report.