Capital market: Dominated by QIPs and ADRs

Qualified institutional placements (QIPs) (It is a faster capital-raising tool, whereby a listed firm can issue equity shares, convertible debentures or any securities except warrants. It is a quick ways of raising fund, relatively hassle free and involves fewer regulatory requirements) seem to have come of age in the corporate fund-raising arena.

Despite economic slowdown stalking the first half of 2009, companies raised more funds through QIPs and depository receipts (DR)( A depository receipt (DR) is a type of negotiable or transferable financial security that is traded on a local bourse but represents a security or equity.) American depository receipts (ADR) and global depository receipts (GDR) - during the year so far, compared to the peaks seen in 2007.

Companies raised Rs 28,312 crore through 41 issues during the last 11 months by placing their stocks with the qualified investors compared to Rs 20,011 crore raised during the entire 2007. In 2008, the funds raised through this means was at a low of Rs 2,104 crore, according to the data compiled by leading investment banker SMC Capitals.

By 2007, QIP was not so popular a means of raising funds, as the first QIP was launched just in September 2006. And the corporate fund raising was well diversified across the sources then, including domestic and foreign. Thus, QIPs have come back with a greater degree than is expected after the markets bounced back on the first signs of economic revival. This provided an opportunity for the funds-starved firms to set their houses in order, after the collapse of Lehman Brothers in September, 2008 and the subprime credit crisis that followed.

However, the same cannot be said in the case of other modes of fund raising, such as initial public offerings (IPOs), follow-on public offerings(FPOs) and rights issues, or international sources such as foreign currency convertible bonds (FCCBs).

Companies raised $ 3.16 billion (over Rs 14,500 crore) in the first 11 months of 2009through DRs, which surpassed the 2007 level of $ 2.64 billion (over Rs 12,000 crore at the present conversion rate of Rs 46.18 per dollar). In 2008, It(DRs)has touched about $ 100 million.

So we can say that,In 2007, GDP (gross domestic product) and high level of investment drove the merchant banking activity. Now, excess liquidity is driving it.
India, along with China, has been attracting most of the global investments over the last few months,adding to the liquidity infused by the domestic stimulus packages.This is reflected in the firming up of the equity prices and other asset classes such as gold and metals.

In 2007, companies resorted to listing of DRs to gain global reputation. Now, there is no need for such moves as Indian companies are sought after globally. As DRs are dollar-denominated, they have become less attractive in the post-Lehman Brothers' scenario.FIIs are preferring non-dollar assets to the dollar-denominated ones, with the confidence in the US economy declining.

Unlike QIPs, DRs are populated by a few big issues. Sterlite Industries alone accounts for $ 1.5 billion or nearly half of the $ 3.16 billion raised through DRs. Other major issues included Tata Motors and Tata Power.According to experts, In 2010, India and China will remain major destinations for global investments, though valuations here are not cheap any more.