India's macro-economic indicators have improved remarkably, placing the economy and the stock markets in a much better state than in the past. There are a number of factors that have led to an improvement in the macroeconomic environment such as fall in inflation over the last two years from double-digits to mid-single digits, rise in forex reserves to an all-time high at USD 350 billion, softening of global crude oil prices and significant reduction in the current account deficit.
Majority of the firms resort to raising capital from external sources to meet their funding requirements. These include bank credit, equity markets, corporate bond markets, external commercial borrowings and private equity, etc.
While the banks have been slow in corporate lending recently, the equity and debt markets provide immense opportunities to corporates to raise cost-effective and long term capital. The primary market segment is witnessing a flurry of activities with a number of IPOs lined up. Both BSE and NSE are expecting a surge in IPOs indicating a strong revival of the primary market that has remained parched since the 2010 market boom.
Further, it has been observed that increasing number of corporates are utilizing the debt market to fund their borrowing needs given the widening difference between the bank borrowing rates and underlying yields in the debt market. While a better rated company can borrow from banks at base rate, the same company can raise short term and long terms debt up to 150- 200 basis points lower in the debt market. While bigger companies with superior credit ratings have managed to tap the debt market, highly leveraged, capital intensive companies continue to rely on bank financing for their incremental loan requirements.
This report seeks to provide an overview of the various sources of financing in India, looking at the trends for the last few years as well the outlook over the next year.
The report was released by CII in association with its knowledge partner, Resurgent India against the backdrop of the Seminar on CII FinCon 2015: Imbibing Change organized on 19 August, 2015 at Raipur, Chhattisgarh.