Buoyant domestic markets, higher interest rates and volatile currency movements nearly halved external commercial borrowings (ECB) by leading Indian companies. The corporate sector raised 46 per cent less funds in the 11 months ending November compared to the same period of the previous year, say market analysts.
While local equity markets slumped in line with a worldwide economic downturn, corporations looked to foreign borrowings to meet growth requirements, but things have bounced back at home. “With equity situation getting increasingly better in 2009, India Inc. has now domestic sources to fund its requirements,” said Jagannadham Thunuguntla, Equity Head, SMC Capitals Limited.
Corporates raised around Rs 49,466 crore through ECBs in the January to November period of 2009, 45.8 per cent less compared with Rs 91,315 crore raised in the same period last year. Meanwhile, qualified institutional placements (QIPs) and public offers (IPOs) of equity seem to have become new favourites of the India Inc. to fulfil its fund requirements. QIPs have seen over 13-fold increase in the present year at Rs 28,726 crore compared to Rs 2,104 crore in the same period last year.
Market players said that given the recent crisis situation, many corporate bodies had cut down on their plans and are yet to revive it. “Promoters are going slow on their expansion plans and don’t want to be over leveraged,” said Hitesh Agrawal, Research Head of angel Broking.
Borrowers also have to bear the risk of currency changes when they repay overseas borrowings to lenders abroad.
“The reason for fall in ECB numbers is interest rates. The overseas markets have got tighter and demand higher interest rates now. Also potential currency movement does not make it economical for companies to go in for ECB,” said Avinash Gupta, Assistant VP Research Equity, Bonanza Portfolio Limited.
Despite the changes, total foreign funds raised in January to November period of 2009 was 36.4 per cent higher than funds raised from domestic source.