Financial Daily from THE HINDU group of publications
Sunday, Dec 04, 2005
Financial Daily from THE HINDU group of publications Sunday, Dec 04, 2005 |
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Stock Markets Corporate - IPOs Money & Banking - Credit Market Equity market dwarfs banks as India Inc's source of finance Suresh Krishnamurthy
BETWEEN April and October 2005, Indian companies mobilised Rs 51,459 crore through public offers, rights issues and private placements. In contrast, through financial year 2005, Banks lent Rs 42,976 crore to medium and large industries as a whole. Not all of them are listed, too. Clearly, the stock market is beginning to dwarf the banking sector as a source of finance for listed companies. With the four-fold rise in prices of listed stocks since 2003 market capitalisation of Indian stocks at about Rs 23.57 lakh crore is substantially higher than total outstanding bank credit of Rs 13 lakh crore. A mere 5 percent expansion in equity can deliver resources to the tune of Rs 1,18,000 crore for Indian companies. That is substantially higher than what industry borrows from Banks each year.
With an increasing number of Indian companies opting to get listed each year, equity market's role in financing India's economic growth is only set to expand. Incidentally, among Asian countries, Bank credit as a proportion of market capitalisation of equities for India is among the lowest. The booming stock market has also ensured that loans as a proportion of market cap for BSE 200 companies is also at its lowest now. This is indicative of the low leverage of large Indian companies. As many as 18 companies in BSE 200 including public sector firms such as MTNL and National Aluminium are zero debt firms. One fourth of firms that are part of BSE 200 have outstanding loans of less than Rs 50 crore. Low leverage however is not necessarily healthy. Leverage is a tool to enhance profitability and shareholders may be losing out a bit on this score.
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