QIPs Surge in India as Businesses Gear up for Economic Expansion

The financial landscape in India has witnessed a surge in the rush for raising funds by companies through Qualified Institutional Placements (QIPs).

An array of listed companies are back in the market to raise fresh capital. This trend signals a revival in the private capital expenditure (capex) cycle.

It usually indicates that companies across various sectors are seizing the opportunity to strengthen their financial positions, with a keen eye on potential economic expansion.

According to PRIME Database, a primary data market tracker, as of September 2023, 24 companies have already filed for a QIP amounting to Rs 224 bn.

Another dozen have already announced plans to raise up to Rs 250 bn through this route. This trend suggests that financial year 2024 could witness a remarkable resurgence, possibly surpassing the Rs 400 bn milestone.

This is a big jump in comparison to the last financial year where only 11 companies managed to secure a total of Rs 90 bn (Rs 9,018 crore) through QIPs.

QIP is a fundraising tool through which a company raises capital by issuing equity shares to institutional investors. Simply put, it is a relatively quicker way to sell shares to institutional investors.

The largest QIP in the first half of financial year 2024 was from Union Bank, raising Rs 50 bn. In addition, there was one QIP of a ReIT of Brookfield India Real Estate Trust of Rs 23 bn.

And now the Bajaj Finance board is set to meet to discuss a plan to raise funds. It is expected that the company might mop up around Rs 80-90 bn through QIP and an additional Rs 20-30 bn via a preferential issue.

Apart from them, IDFC First Bank recently secured Rs 30 bn through a QIP, as per banking sources. Cholamandalam Investment and Finance initiated a Rs 40 bn QIP, with Rs 20 bn in equity and mandatory conversion.

As per banking experts, the majority of the QIP funds will be earmarked for new projects, upgrading existing infrastructure and acquiring capital assets.

Simultaneously, lenders intend to use the proceeds to meet their long-term capital needs. They seem to be gearing up in anticipation of market expansion in the near future.

But it's not just the financial sector doing a fresh round of fund raising. One of the standout features of this surge in QIPs is the diversity in the sectors participating.

The power generation sectors together with the financial sector, have accounted for a substantial 70% of the overall funds raised during the first half of fiscal 2024.

Wind turbine maker Suzlon Energy and Adani Green announced a QIP of Rs 20 bn and Rs 85 bn, respectively.

Apart from these sectors, Ramkrishna Forgings, Texmaco Rail, and Jupiter Wagons (all from capital goods) have also committed to raising funds via this avenue.

What is Driving this Renewed Interest in QIPs?

Well, it appears that companies are looking at the future with optimism.

Most are planning to grow organically or via acquisitions, in the near future. As a result, they are actively pursuing significant capital injections.

By strengthening their financial positions through QIPs, they are ensuring the necessary resources to fuel growth, undertake expansion projects and explore potential acquisitions.

Indian businesses are preparing to capitalize on the anticipated economic boom, led by the capex cycle boom.

And this time, the capex cycle seems to have solid legs to stand on.

The recent global supply chain disruptions have acted as a tailwind for the "China plus one" megatrend, benefiting India significantly.

Policies like "Make in India" and production-linked incentive schemes (PLI) have contributed to India's growth.

The textile industry in India has emerged as a leading exporter. Even tech giant Apple has shifted its manufacturing base to India, aiming to produce a substantial portion of its iPhones here.

The indigenisation efforts in the defence sector have given rise to homegrown defence companies with export potential.

Conclusion

As businesses gear up for economic expansion, the resurgence of QIPs is an intriguing trend to watch closely.

It not only reflects the financial prowess of India Inc. but also hints at a brighter future for the country's economy.

However, it's essential to remember that QIPs are typically associated with bull markets. They have a history of surfacing when the secondary market is rallying.

This aligns with the fact that companies would prefer diluting their shareholding at a higher valuation. It also explains the temporary dip in QIPs in financial year 2023, where there was a fair amount of bearishness across Indian markets, especially in the first half.

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