Money from initial public offers (IPOs) and follow-on public offers (FPOs) for the year was around Rs 20,000 crore while Rs 31,000 crore came through qualified institutional placements (QIPs), says SMC Capitals Equity Head Jagannadham Thunuguntla. In 2009, Indian companies raised money through debt and equity routes for valid reasons.

1. Indian firms high on equity, low on debt
By Kumar Shankar Roy Jan 04 2010
While Indian companies have raised large amounts of debt in 2009, they are actually less leveraged than most of
their emerging market peers. The debt-to-equity (D/E) ratio, which measures financial leverage for a company, is 0.5
times for India Inc, which is much lower than Japan (0.8 times), Australia (0.6 times), Malaysia (0.6 times), China
(0.52 times), Thailand (0.58 times), the Philippines (0.56 times), Indonesia (0.53 times) and Singapore (0.51 times),
said a report from Edelweiss Securities.
The D/E ratio indicates the relative proportion of equity and debt used to finance a company’s assets. In calculating
the ratio for Indian companies, Edelweiss has used data from Centre for Monitoring Indian Economy and Bloomberg.
It is important to realise that if the ratio is greater than 1, the majority of assets are financed through debt. If it is
smaller than 1, assets are primarily financed through equity.
While Indian companies have low leverage, experts feel this factor will contribute to Indian stock market getting a
premium valuation over most emerging markets.
“At the micro level, we believe Indian companies are being less leveraged than emerging markets’ average and this
supports India’s premium over other stock markets belonging to emerging economies,” Nischal Maheshwari, head of
Edelweiss Securities, said in the report.
According to data from Prime, the first half of the present financial year saw fund mobilisation through bonds of Rs
83,961 crore on a private placement basis. This was mobilised by a handful of only 108 institutions and companies.
Money from initial public offers (IPOs) and follow-on public offers (FPOs) for the year was around Rs 20,000 crore
while Rs 31,000 crore came through qualified institutional placements (QIPs), shows data from SMC Capitals. In
2009, Indian companies raised money through debt and equity routes for valid reasons.
According to Prabhat Awasthi of Nomura, in 2009 while some of this capital was used to retire old debt (through the
use of QIPs), some portion of the funds also went towards bolstering working capital and supplementing general
expenses.
“A major proportion of these fresh funds is being deployed for investments as previously stalled projects come back
on line, new long-term projects get sanctioned and firms modernise and expand their facilities,” Awasthi said in a note
to clients.
Another data point that supports the theory that premium paid for Indian stock markets is here to stay for some time,
is the high debt/GDP for developed economies.

2. “The growth in developed countries will be sluggish because even their debt/GDP is very high i.e. 62 per cent and 58
per cent for the the UK and the US.
It is highly unlikely that developed economies will go in for early exit from stimulus packages or advance their
timelines to pay back government debt,” said Pankaj Pandey, head of research at ICICI Securities.