Mumbai, Sept. 20: The rush for capital promises to become more frenetic.

Over the past few weeks, Indian companies are scrambling to raise cash to take advantage of a vaulting sensex and the heightened interest of foreign institutional investors (FIIs).

In recent weeks, those who have scooped money through stock sales include Reliance Industries, which sold a part of its treasury stock to raise over Rs 3,000 crore, and Axis Bank, which made the biggest private placement of shares to raise over $720 million.

The stock markets are buzzing with talks of a slew of initial public offerings (IPOs) and private placement of shares from sectors as diverse as real estate, power and roads and financial services as well as pharmaceutical and commodity players.

Prime Database estimates that there are mega offers totalling about Rs 40,000 crore each by a host of private sector and government-owned companies in the pipeline (See table).

Market estimates indicate that the real estate sector, which has started to recover after a particularly rotten year, will be lining up fresh IPOs or follow-on public offers (FPOs) worth over $5 billion.

Emaar MGF — which had to scrap its IPO in February 2008 after investors pulled their subscriptions in a skittish market — is believed to be readying for a renewed flotation. The market also expects Raheja Developers, the Mumbai-based realtor, to go public.

Private firms such as Pipapav Shipyards and Godrej Properties, which have received Sebi approvals for flotations several months ago and have been waiting for the markets to stabilise, have either launched their issues or will do so shortly.

The line of companies tapping FIIs for qualified institutional placements (QIPs) will get longer with several big transactions expected from companies such as Aditya Birla group company Hindalco that proposes to raise $500 million and pharmaceutical major Cipla seeking to garner $125 million through a private placement of shares.

Pent-up demand

Why are companies making a beeline for the equity markets? A cocktail of pent-up demand, limited access to debt, a need to deleverage highly geared balance sheets and opportunistic fund-raising have contributed to this rush for capital. The action is taking place against a backdrop of an incredible 62 per cent leap in the bellwether index this year till early September.

But it isn’t the bullish phase of the markets alone that has enthused promoters.

“Even in 2006 and 2007 when the public markets were booming, Indian companies had weak operating cash flows. In the present scenario, banks are reluctant to lend whereas we haven’t seen this kind of interest from FIIs in at least two years. Even blue-chip companies need working capital and all paths seem to lead to the equity capital markets,” said Noble group head of Indian equities Saurabh Mukherjea.

He, however, warned of some opportunistic capital raising by promoters. “IPO prices are too high and the pricing of some issues like Pipapav Shipyard and Adani Power has not made sense,” added Mukherjea.

That may be true, but market watchers and analysts still believe that the Indian companies need to raise large amounts of capital.

“A lot of companies, especially those who made large acquisitions over the past few years, will have to reduce debt in their books,” said HDFC Bank treasurer Ashish Parthasarathy.

Prithvi Haldea of Prime Database believes that the pipeline for IPOs and FPOs has been very strong as large sectors — such as real estate — will see more firms going public.

Several others such as power, airports or road development projects have little option but to tap the equity route to meet their colossal capital requirements.

Amid all this hectic activity, traders however, warn of several instances in the past where companies have got spooked after one of their peers did not fare well on listing. Several companies are still trying to gauge the market’s mood before they launch their issues.

The Reserve Bank of India has already indicated that it might consider tightening its expansionary monetary policy sooner than other central banks around the world.

This might spark a scramble and a crowding of public issues – an aspect that companies are looking at very closely.

However, as long as FIIs have access to cheap money and the sensex holds steady, Indian companies will not let up in their hunt for capital.