India Inc tapping foreign funds for equity binge

Foreign funds, attracted by the domestic consumption-led rebound story in India, have been a crucial driver in the 89 per cent rally in Indian stocks since an early March low, pouring roughly $8.7 billion into the market over that period and powering an 8.1 per cent appreciation in the rupee.

Overseas investors are the biggest buyers of new shares from India, where companies have raised more than $7.5 billion in equity so far this year, surpassing the full-year total for 2008, according to Thomson Reuters data.

That is still far short of the record $32.4 billion they raised in 2007. Dozens more Indian firms hope to come to market with equity sales over the next few months to fund growth and repay debt. Issuance in recent months has come almost entirely through follow-on offerings by listed companies, but numerous companies are dusting-off IPO plans, which take several months to develop.  IPO hopefuls include Adani Power, which aims to raise $623 million. Power firm NHPC Ltd and Coal India Ltd, both of which are state-owned, could raise more than $1 billion between them.

QIPs fail

Some recent qualified institutional placement (QIPs) plans failed to gain traction. GMR Infrastructure tried to raise $500 million but scrapped its deal after failing to generate sufficient demand. Lanco Infratech deferred a planned $400 million issue last month, sources said.

Indian companies trade at about 17 times forecast earnings, compared with nine times in March and the recent historical average of roughly 14 to 15 times forecast profits.

Bankers said that in general, an Indian IPO needs to be taken up about 60 to 70 per cent by foreign funds in order to succeed, given the lack of depth in a domestic institutional investor base where local mutual funds hold just $33 billion in equities.

Foreign institutional money also dominates in follow-on deals. Unitech raised $900 million
in two share sales since April, with overseas investors buying 90 per cent of the offerings, bankers said.

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