The capital goods sector followed the financial services sector with a 12 per cent share of total funds mobilised. This was lower than its share of over 15 per cent in 1996-97. The chemicals and rubber industry came in third with a share of 4.44 per cent against 6.49 per cent in the previous year.

Public sector companies, including financial institutions, were the major issuers during the year, raising a total of Rs 18,761 crore. This accounted for 62 per cent of the total funds raised from the market. The private sector accounted for Rs 8,070 crore of the total funds mobilised.

The maximum funds raised by the public and private sectors through the private placement route was Rs 4,346 crore, during the month of December 1997.

Companies in the public and private sector have been increasingly resorting to borrowings through the private placement route to escape getting their debt instruments rated by credit rating agencies. There have even been instances where corporates have used ratings assigned to them when they were in good financial health, for raising funds under private placement. These corporates had been using the old high-grade ratings assigned to them to convince investors into investing in their instruments.

The dependence of companies on the private placement route will continue during the current year, feel rating agency officials. With the economy showing no signs of coming out of its slumber, there has been a heavy spate of downgrades by rating agencies. Those getting themselves rated have had to settle for lower ratings, forcing them to offer higher coupons on their instruments in the process.

Until the Department of Company Affairs (DCA) makes it mandatory for instruments being offered under private placement to be rated, there will continue to be an increase in the volume of debt under private placements, feel ratings analysts.

Shift towards disintermediation speeds up

The fact that the financial services industry has been able to garner 76 per cent of the total resources raised during the last one year indicates that the shift towards disintermediation has gathered momentum. But this is also a reflection of the fact that there has been a breakdown of public confidence in intermediating directly with the corporate sector. This also explains the tightening of spreads in the financial sector as these institutions have mopped up funds available while there has been a time lag in lending these funds.