Several listed companies have resorted to share buy-back by using their reserves to boost investor returns instead of increasing their capital base, finds an Assocham study.
“In some cases, the buy-backs have achieved the desired results to an extent. However, the buy-backs are not the solutions. India Inc would like to operate in a vibrant capital market where raising funds by way of equity should be an easy option. For that, the investor confidence has to be restored, which seems a long haul as far as the stock markets, particularly the retail investors, are concerned,” the study pointed out.
No fresh loans
In the wake of company’s inability to tap the capital market, the only option was to raise funds through loans, which were quite expensive due to high interest rates.
“The disturbing trend is that many corporates are not raising fresh loans for investment but to redeem old loans, which itself has become an arduous task,” said Dhoot.
Assocham study also points out that the sharp rise in the earning per share (EPS) of most companies in the September quarter has not resulted in commensurate increase in share prices. It reflects the corporate houses inability to expand capital base and raise finances through the equity route, it said. This was largely due to depressed market conditions in the last one year.
The trade body study of 130 companies points out an EPS increase of about 70 per cent for the September quarter compared with the same quarter last fiscal.
Sluggish market
Rajkumar Dhoot, President, Assocham, said ordinarily a healthy rise in the EPS should have resulted into an improved price-to-earning multiples. However, this is not seen in the market because of sluggish movement of the stock market barring the last couple of months.
The companies that have shown improvement in the EPS include Indo Rama Synthetics, Gujarat Mineral Development Corporation, Shree Cement, Somany Ceramics, MindTree, Exide India and Mahindra Holidays and Resorts.
However, the country’s largest private sector company Reliance Industries has reported a decline in EPS at Rs 16.60 this quarter against Rs 17.4 in the second quarter of last fiscal.