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QIP issuance hits 11 quarter low in March 2016

A poor start to the equity markets in calendar year 2016 (CY16) has not only dampened investor sentiment, but has also kept companies at bay from raising funds via the qualified institutional placement (QIP) route.

Suprajit Engineering is the only company that has raised Rs 150 crore through QIP in the first quarter (January-March) of CY16 - the lowest since September 2013 quarter when no company used the QIP route to raise funds.

During the previous corresponding quarter, 13 companies had raised Rs 4,857 crore though QIP route, while five firms mobilised Rs 1,780 crore in October - December 2015 quarter. As many as 32 firms had raised Rs 19,065 crore in CY15 and 33 companies raised Rs 31,685 crore in 2014, suggests data from PRIME Database.

Analysts attribute the lack of fund raising to volatile market conditions in the first two months of the CY16.

"The markets have been volatile in the first two months of CY16. Barring the last one month (of March), the markets have reacted to the developments at the global level thus far in the new calendar year. The conditions have not been conducive for investors to take a decisive view - both from an issuance and investment perspective," said Dhananjay Sinha, head of institutional research at Emkay Global Financial Services.

Weak global sentiment cast its shadow on the Indian markets as well, with the S&P BSE Sensex slipping nearly 12% in the first two months. March, however, saw the markets recover 10% on the back of positive foreign institutional investor (FIIs) flows post the Union Budget that stuck to its earlier fiscal deficit target and raised hope of a rate cut by the Reserve Bank of India (RBI).

Outlook

Despite the weak start and choppy markets, analysts expect the QIP issuance to gain momentum going ahead in CY16.

"In terms of process, it takes about two - three months for the companies to tap the markets for funds. The market crash in January and February had put off a lot of investors, including those who wanted to raise funds. While the markets crashed 10%, some individual stocks corrected over 50% as well. However, I expect this to improve in the second quarter (Q2CY16) on the back of a market recovery in March," points out G. Chokkalingam, founder & managing director, Equinomics Research & Advisory.

For corporates to raise money via the QIP route, a lot will depend on the overall sentiment in the secondary market. A buoyant sentiment in the longer run will augur well, they say. In the immediate term, however, the road ahead will depend on how the earnings pan out.

"The Nifty may be range-bound between 7,300 - 7,500 levels assuming a 10% uptick in earnings growth, but the overall sentiment will remain volatile. As a result, the markets will continue to pose a challenge for those who want to come out with fresh issuance even through the QIP route," Sinha of Emkay says.

Chokkalingam, however, does not see any negative stress points for the markets in the immediate term given the positive forecast for the monsoon and good inflow of funds in March.

"Though I am bullish on the markets from a short - term perspective and believe that there can still be a 5% - 10% upside, one needs to watch the global developments in case the investment horizon is 6 - 12 months. I don't think March quarter corporate results will give a big surprise to the markets," Chokkalingam adds.