Indian companies raise less funds in 2022 thanks to equity and debt | Mint – Mint

2021 has been an extraordinary year for fundraising from equities and debt, while 2022 has seen a slowdown in capital raising due to high volatility caused by unprecedented inflation around the world and the Russian-Ukrainian war.

“The first half of 2023 could continue to be challenging, largely due to global macroeconomic developments. If the slowdown/recession in the US is moderate, we could see a recovery in global markets in the second half of the year. next year, which would help investor sentiment and Indian markets as well,” said Vishal Chandiramani, Managing Partner Products and COO, TrustPlutus Wealth (India) Pvt Ltd.

Even with a rebound in markets, it will be more difficult to raise funds in the next few years compared to previous years, he noted.

Over the past year, the mobilization of debt markets has intensified, while the retrieval of new capital through equity instruments has declined sharply, equity market volatility triggered by geopolitical tensions that led to a halving of IPO fundraising in 2022.

Debt market mobilization continued to be the main contributor to overall fundraising activity this year.

Excluding cumulation ₹11 lakh crore raised till mid-December this year, funds totaling ₹6.92 lakh crore was mopped up from the debt market, ₹1.62 crore came from the stock market and ₹2.52 lakh crore via the overseas route, according to data compiled by leading analytics database Prime Database.

By 2021, companies had raised ₹13.6 lakh crore including ₹6.8 lakh crore by debt and ₹2.85 lakh crore by equity, which was a record ₹1.2 crore lakh initial public offerings (IPO).

These figures suggest that the climate in 2021 was very attractive for fundraising activities and that the environment in 2022 showed a clear difference.

TrustPlutus’ Chandiramani described 2022 as a tough year for domestic and global markets compared to 2021. Inflation rose globally, leading central banks to raise interest rates several times over the course of the year. of the year.

This increased the cost of borrowing and drove up yields, resulting in one of the worst years for global bond markets in decades.

Additionally, stock markets globally have been volatile, with most yielding negative returns, he added.

Even in private markets, fundraising has slowed significantly and valuations are down 50-70% from a year ago, said Kanika Agarrwal, co-founder of Upside AI.

“2021 has been a good year to refinance debt at lower cost, raise new capital through debt at highly optimized costs and benefit from happy valuations in an optimistic climate,” said Nirav Karkera, head of the research at Fisdom.

In 2022, the stimulus dried up, accommodative monetary policies began to reverse, runaway inflation became the global theme, the Russian-Ukrainian war bruised global supply chains and was accompanied by a myriad of challenges, he added.

New capital has been raised by companies for the payment of debt, to finance capital expenditure for new projects, to support inorganic growth such as acquisitions and also for marketing and R&D purposes.

of total ₹6.92 lakh crore raised through debt in 2022, ₹6.84 lakh crore came from a private placement and ₹7,921 crores via public issuance.

The lack of liquidity and weak base of the interest rate cycle initially made debt routes cheaper for companies raising funds, said Vinod Nair, head of research at Geojit Financial Services.

In the equity market, the funds came mainly from the preferential issuance of shares, which is one of the fastest mechanisms for companies to raise funds.

However, fundraising through other equity avenues such as Qualified Institutional Placement (QIP), Rights Issuance and IPO has seen a drastic decline.

IPOs accounted for more than ₹59,000 crore, QIP route added ₹11,743 crore, Offer of Sale (OFS) segment contributed ₹8,342 crore and issuance of equity rights to existing shareholders accounted for ₹3,817 crore.

In addition, real estate and infrastructure investment trusts (REITs and InvITs) collected together ₹2,700 crores.

Fundraising through the initial sale of shares has been halved ₹1.2 lakh crore in 2021, which was the best IPO year in two decades.

As we approach 2023, Nikhil Kamath, co-founder of Zerodha, said that debt looks extremely attractive and will increase significantly – corporate and government debt will have higher coupons, which will give higher yields. students.

One can get an FD rate as high as 7.5% and stock markets have traditionally returned around 8% per year (with risk). If the risk-free investment – debt – can generate a return close to that, the trade-off between the two is reduced, he added.

Regarding the impact of the new variant of Covid on fundraising, said Agarrwal of Upside AI, the markets now know how to react to the variants. Sounds like a “known” risk that is probably being considered.

However, the Chinese government has been very opaque in its policy response, so the lack of transparency can add a layer of risk if it causes further supply chain disruptions, she added.

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