Buoyant market conditions, an abundance of liquidity, and a need for rapid and selective fundraising saw qualified institutional placements emerge as the financing tool of choice for listed companies in 2024. The trend is likely to continue into 2025, despite slowing market conditions, experts say. 

• QIP fundraising doubled to $16 billion in 2024
• Speed and selective investor choice drive QIP popularity
• Market volatility expected in 2025, but QIP momentum likely to continue

When Kaynes Technology, an IoT-enabled Indian integrated electronics manufacturer, recently announced plans to raise $185 million, it joined a growing wave of companies turning to what has become one of corporate India's favourite fundraising tools: Qualified institutional placements, or QIPs. 

In 2024, Indian companies raised a whopping $16 billion through these specialised issues, more than doubling 2023's figure of $6 billion. The number of deals also surged from 45 to 95, according to Prime Database, marking a watershed year for this increasingly popular financing route.

“India is currently witnessing a revival of private capex cycle as also bullish capital markets. This gives an opportunity to Indian businesses to strengthen their balance sheets and prepare for the next phase of growth.” 

• Manan Lahoty, partner, Cyril Amarchand Mangaldas

With general elections in the rearview mirror and corporate earnings showing reasonable growth in the first two quarters, companies seized the moment to beef up their balance sheets and fund strategic expansion plans either through capital expenditure or strategic acquisitions. 

“India is currently witnessing a revival of private capex cycle as also bullish capital markets. This gives an opportunity to Indian businesses to strengthen their balance sheets and prepare for the next phase of growth,” observes Manan Lahoty, head of Cyril Amarchand Mangaldas’ capital markets practice.

“QIPs presents an attractive proposition for investors since there is no regulatory lock-in and unlike a preferential allotment, there is no need to declare the name of the investor upfront unless the allotment is made.”

• Milind Jha, partner, Dentons Link Legal

He adds, “There has been an increase in the number of block deals – which is an indicator of market appetite for large transactions. All these factors have encouraged listed companies to return to the market.”

The availability of abundant liquidity coupled with a strong secondaries market also fuelled the QIP rage, notes Milind Jha, head of capital markets at Dentons Link Legal, global law firm Dentons’ India alliance firm. 

QIP APPEAL

While public companies have several fundraising routes, such as a rights issue or a further public offer, QIPs have emerged as the clear winner in 2024, legal experts say. 

Speed and simplicity, combined with exclusivity, regulatory safeguards and preference for sophisticated investors, make QIPs the most preferred route, explains Arka Mookerjee, a capital markets-focused equity partner at JSA Advocates & Solicitors.

Think of a QIP as a fast-track lane for listed companies to raise money. While traditional methods like rights issues or follow-on public offers can drag on for six to nine months, a QIP can wrap up in as little as six weeks. For companies eager to strike while the iron is hot, that's a game-changer.

This speed is coupled with a strong yet straightforward regulatory framework governing QIP issuances, which “gives comfort to an incoming investor that the fundraising programme is meticulous and has the integrity of best market practises,” Mookerjee says. 

But speed isn't the only draw. Issues are allowed to handpick investors, allowing them to onboard long-only funds and offer significant share allocations—a key consideration for large investors, observes Lahoty. 

The ability to select from high-quality investors such as mutual funds, FPIs, FIIs, PFIs, sovereign funds offer added advantages in terms of valuation stability and building quality capital tables. 

“These are quality investors who take a long-term view on the fundamentals of the company ensuring price stability. To add, they are preferred investors on the cap table of any corporate and yet allow companies to maintain significant control without diluting ownership,” Mookerjee notes. 

QIPs come with built-in advantages that make them particularly attractive to both companies and investors. The pricing follows a formula set by India's market regulator, SEBI, based on recent stock performance. Add in an allowed 5 percent discount, and you've got a recipe that's proven irresistible to sophisticated investors like mutual funds and sovereign wealth funds.

“QIPs present an attractive proposition for investors since there is no regulatory lock-in and unlike a preferential allotment, there is no need to declare the name of the investor upfront unless the allotment is made,” Jha adds. 

OUTLOOK 2025

The momentum shows for QIPs no signs of slowing. In December 2024 alone, 27 companies received board approval to raise funds through QIPs. 

With markets showing signs of cooling off, some might expect the QIP party to wind down. Market experts aren't so sure. They point to surplus cash sitting with domestic institutional investors, particularly mutual funds, as fuel for continued QIP activity.

“Issuers planning to use the QIP route will have to be careful in a volatile market,” warns Lahoty. The key challenge is to navigate the floor price requirement – based on trading price over the preceding two weeks. “If the price of shares is falling in the run-up to the launch, the floor price may be higher than the ruling market price making it difficult to attract investors. We do expect issuers to be prepared to launch deals as soon as they get a window,” he adds. 

But that window is larger for QIPs than most other alternatives. With a 365-day validity period for shareholder approvals – compared to just 15 days for some other methods – companies can play the long game, waiting for the right moment to strike. This allows companies “to be flexible in their strategy and to potentially time the market,” Mookerjee explains. 

Still, certain sectors look primed for QIP action. Financial services firms, facing growing pressure from stressed assets, are likely candidates. Additionally, infrastructure companies, pharmaceutical manufacturers, and textile firms are also expected to tap this route as they chase growth opportunities.

“We feel the QIP activity would continue to remain buoyant even on account of cyclical correction in the markets for capital-intensive businesses as well as growing requirements of the existing businesses,” Jha says. “The situation may, however, change in case of significant rate cuts by RBI thereby easing the lending rates.”