The Hindu Business Line : Indian companies awash with liquidity<br>Surplus funds in excess of Rs 1,00,000 crore

Listed Indian companies are sitting on a pile of cash and liquid investments, which at the end of financial year 2005, aggregated to about Rs 1,16,000 crore.

For many years now, cash accruals of Indian companies have significantly exceeded the amounts that they have invested in new assets. Notwithstanding this, they have been raising fresh money in the form of both equity and debt. They are consequently sitting on an amount that is twice their annual investment in fixed assets.

The list does not include public sector oil companies and software service exporters. The picture, however, does not change even if they are included. Inclusive of oil and IT companies, cash surplus increases to Rs 1,45,000 crore. This is again twice the aggregate annual investment in fixed assets.

Lenders to banks: The ever-increasing hoard of cash has turned listed companies into lenders to the banking system rather than the other way around. In FY05, listed Indian companies cumulatively raised loans of Rs 12,550 crore from banks and others. In contrast, during FY 2005, they parked an additional sum of Rs 33,600 crore in term deposits of banks.

Apart from oil and software firms, listed companies that are now sitting on a large amount of surplus resources include NTPC, Reliance Industries, Reliance Energy, SAIL and Tata Motors. The top 25 companies account for nearly two-thirds of the aggregate surplus resources.

Parking in MFs, G-Secs: Apart from term deposits and current accounts, Indian companies had parked large amounts in mutual fund units and in government securities also. Sixteen companies, including ONGC, NTPC and SAIL, have parked in excess of Rs 1,000 crore in term deposits; nine companies, including Hindalco, ITC and Wipro, have invested Rs 1,000 crore or more in units of mutual funds.

Incidentally, the surplus calculation does not include investments in equities and debentures.

If some of these investments, which may relate to group companies, were also liquid, then the total surplus would swell further. This hoard of cash implies that even if listed companies start investing in fresh assets, it will not result in a substantial increase in bank credit.

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