Panch Tattva Wisdom

For a long time, India’s mega-cap companies have remained conservative in tapping public markets for capital, preferring retained earnings or bank borrowings. This pattern, however, appears to be changing gradually — and it’s a welcome shift.

A more efficient financing route lies in Convertible Debentures (CDs) — instruments that combine the security of debt with the flexibility of equity conversion. Their advantages are clear:

Lower funding costs: Coupons can be priced below bank lending rates while still offering better returns than fixed deposits.

Disintermediation gains: Bypassing banks reduces intermediation costs and improves capital efficiency.

Equity alignment: Allowing conversion at a modest discount (say, 5%) to the six-month average price keeps both companies and investors aligned with long-term value creation.

Such instruments can deepen India’s capital markets, diversify corporate funding sources, and gradually reduce dependence on bank-led credit. As confidence in the economy builds, it’s time for large corporates to lead this evolution in market-based financing.

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