India’s ECM flight to quality

Euromoney, September 30 2020

The country is enjoying a record year in equity capital raising, built on rights issues by Reliance Industries and the country’s top banks. Behind the numbers, however, there are signs that the leaders will get stronger, while those behind may struggle.

ndia has suffered like few other countries under Covid-19. It has the second-highest number of cases, over five million, and the third-highest number of deaths, at least 82,000, in the world. The density of its population and the strain on its health services makes its outlook particularly tough.

The heavy burden of the pandemic had a pronounced effect on equity capital raising in the country: first shutting it down, then driving it to record levels in a matter of months. With $33 billion raised in the equity markets by early September, India has never seen anything to compare with it.

“It’s been an exceptionally busy period in terms of capital raisings,” says Arvind Vashistha, head of equity capital markets for India at Citi. “The last time India raised this much capital in a year was in 2007.”

Since then the exchange rate has changed dramatically, from 45 to 50 rupees to the dollar in 2007 to around 75 today.

“So in absolute INR [rupee] terms, India has raised record capital already,” Vashistha says.

And that’s with several months of the calendar year still to go.

But the high volumes mask a striking underlying trend: almost all the issuance is from established names with strong track records and loyal institutional followings. Few smaller or lower-quality names have access to the market.

The result is likely to be an environment in which the strong get stronger and the weak are in trouble.