Investments

Indian Companies Raise $31B In Equity As Economy Tanks 

As India’s economy has shrunk to its worst level in 40 years in the second quarter (Q2), the nation’s businesses raised $31 billion in equity capital this year, according to global data provider Refinitiv.

The stampede of cash raising comes as India’s gross domestic product fell by 24 percent in Q2 as the pandemic took its toll on the nation’s economy. The Ministry of Statistics & Programme Implementation (MOSPI) said last week the shutdowns to prevent the spread of the coronavirus since late March were responsible for the decline.

Reuters reported the record amount of cash stemmed from banks strengthening their balance sheets to prepare for an uncertain economy. But the rush failed to include initial public offerings (IPOs), which fell to $1.5 billion for the first eight months of the year, the lowest level since 2015, the Refinitiv data revealed.

Of the $31 billion, banks have raised nearly $14 billion, followed by $7 billion from the energy sector, and consumer products came in third at more than $3 billion.

“We expect issuance to expand further to growth capital in the coming weeks and months, and the pipeline is developing across sectors,” Ravi Kapoor, Citigroup’s managing director of global banking, told Reuters.

Foreign investors also got a piece of Indian equities, buying $10.3 billion of new shares in June, July and August, Reuters reported.

“The interest from foreign investors has been very strong, and that reflects the fact that the quality of issuers that have come to market have been from the Top 100 companies,” Morgan Stanley’s executive director Samarth Jagnani told Reuters.

In May, Jio Platforms, India’s largest mobile commerce company and a Reliance Industries subsidiary, announced KKR, a New York-based private equity firm, pledged $1.5 billion for a 2.3 percent stake in the company.  

Last month, The Wall Street Journal reported the people hit the hardest by the pandemic are those who recently entered the middle class and those just below them.

Vivek Kaul, an economist, told the newspaper that residents have realized how fragile their situations are and acted accordingly. He added economic growth will not return to pre-pandemic levels anytime soon.

 

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