Using share sales for funds and raising debt through bonds, are common practices used by businesses to raise capital for new projects and expansion as part of growth plans. But as uncetainty in markets went up and credit became costlier, the cash generated by firms through equity and debt instruments has dipped by an alarming 20 per cent in 2022.
After the Russia-Ukraine war bogged down exhuberance in 2022, the first half of 2023 won't be any better. Even after the markets show a recovery, raising funds will remain a challenge for some years to come. As for the Rs 11 lakh crore in funds raised by Indian firms in 2022, most of it came from bonds, as financing from equities remained subdued.
At Rs 1.62 lakh crore, the cash that came from equities were even lower than that from overseas market which was Rs 2.52 lakh crore. Last year, the funds from equity and debts had surged past the Rs 13.5 lakh crore mark. The major difference between 2021 and 2022, was the rising inflation which has triggered aggressive hikes in interest rates, that made borrowing money more expensive.
Higher yields caused by that, in turn made bonds less attractive for investors. Valuations have been dragged down by as much as 70 per cent even in the private markets.
As for shares sales, while 2021 was the best year for IPOs in 2021 despite failed offerings such as Paytm and Zomato, the proceeds from initial stock sales were 50 per cent down for 2022.
