Soaring Investment for Indian Companies amid Country’s Shrinking Economy

Indian companies, led by Reliance Industries Ltd. (RIL) and several banks, have accumulated various fundraising from investors across the globe amid the shrinking economy of the country, prompted by the widespread COVID-19. During the emergency lockdown, which was started in late March due to the further escalation of the virus spread, the Indian government was witnessing a sharp decline of the country’s economy.

Currently, India is trailing after the United States (U.S.) and Brazil with nearly 4 million COVID-19 cases and the death toll is over 68,470 until Friday, September 4, 2020. Surprisingly, foreign investors are showing keen interest in buying equities of Indian companies amid the harsh impact of the pandemic, which has shattered the global economy.

Raising $31 Billion Equity Capital

As per the data released by Refinitiv, Indian companies have raised a record of funding from investors worth $31 billion in the form of equity capital for the current year. The data showed that Indian banks have contributed the major share of the fundraising, which accounts for nearly $13.68 billion. The energy and power sector issued equity shares worth $7.05 billion, which is followed by the consumer industry contributing around $3.41 billion.

RIL, which is owned by Asia’s wealthiest Mumbai-based tycoon Mukesh Ambani, alone raised $7 billion in June. From April to June, the conglomerate group has collected $15.2 billion as several world’s leading giants including Facebook Inc. and private equity firm SilverLake have invested in RIL’s newly launched retail arm, JioMart.

With these fundraising deals, banks prepare to meet economic uncertainty and companies to reserve cash for future market expenses and expansion. Reflecting the data, EY India partner Sandip Khetan stressed that the fundraising by banks would help create “a cushion to the potential losses on account of credit losses” that could occur in the future. However, the data showed that the deals related to initial public offerings (IPOs) have slumped to a five-year low to be worth just $1.5 billion, in the eight months year to date.

Shrinking Economy

On Monday, August 31, 2020, data of the National Statistical Office showed that the Indian economy witnessed its worst Gross Domestic Product (GDP) contraction in decades in the April to June quarter. The Hindu Newspaper reported that the economy shrank to a record 23.9% for the mentioned quarter compared to year on year, which showed a first annual contraction since 1980.

The result was a sharp contract to a Bloomberg poll, which had earlier estimated that India’s GDP contraction would be around 18% for the quarter. As Chief Economist at Bandhan Bank, Siddhartha Sanyal explains, “GDP contraction of close to 24% year-on-year during Q1 FY21 was sharper than expected. Double digit contraction in GDP remains likely also during the current quarter with the headwinds of fresh lockdowns weighing on economic recovery.”

Meanwhile, Citigroup’s India head of banking and capital markets, Ravi Kapoor said, “We expect issuance to expand further to growth capital in the coming weeks and months, and the pipeline is developing across sectors,” reflecting the rise of investment in Indian companies. The data showed that the interest of foreign investors in Indian equities has grown rapidly, which accounted for nearly buying $10.3 billion of new shares in the three months to August.