Capital Structures of the Indian Industrial Sector

Capital Structures of the Indian Industrial Sector Chapter 1 INTRODUCTION 1.1 Introduction Capital is the main factor of every industry, a company start with capital and end with demolition of that capital. So the capital and capital structure are one of the most important terms in every business, Companies have been struggling with capital structures for more than four decades. During credit expansions, companies have been unable to build enough liquidity to survive the contractions, especially those enterprises with unpredictable cash flow streams which end up with excess debt during business slowdowns In this research I am going to Exam the changes in the capital structure of Indian industrial sector, with a special reference to Indian textiles industry .The purpose of this paper is to determine whether firm-specific capital structure determinants in the emerging market of India. support the capital structure theories which were developed to explain the company structures in developed economies. In other words, the main motivatio n for this study is to highlight the role of firm characteristics and industrial sector-specific variables in determining capital structure. This is an attempt to a panel data study of capital structure determinants. Statement of the Problem There is lot of study conducted in the field of capital structure theory but no systematic study with applying econometric model and tools used like panel data are not conducted in India yet. It consist analyzing both time and cross sectional variables. There is No studies are conducted on specified sector. The study by sector wise is more effective than in macro level research which is avoid sector variable. Each industry has its own uniqueness and situations. When taking macro level data set will miss its sector uniqueness. This research is an enquiry through panel data analysis with considering sector as important factors. Specifically researcher tries to answer some questions, firstly which selected factors are more influence in short te rm leverage of a firm, and which is not influence on it . Secondly long term leverage has any determinate in Indian industry and which factors is more influenced in total debt decision. Also questioned extraneous variable like bank rate, inflation rate can make any impact on capital structure. The researcher conduct a pre study for specifying research problem. Pre study The pre study was conducted by analyzing all companies in india by classify these companies in sector wise. Assigning debt equity ratio as variable for prestudy, by Using cmie and Bloomberg database, researcher collect all companies 5year debt equity ratio and classified them in sector wise. Companies arranged under in a Automobiles & ancillaries, Banking, chemical , communication, construction & real estate, construction material, consumer goods sector, energy, food & Agro, hotel & tourism, IT, investment & finance, Machinery, metal, mining ,textiles, transport and wholesale & re tale sectors. Take 5 year averag e of all company and find out standard deviation of each sector. The value arranged below table. Table 1.1 .Result of Pre study Sectors Average Debt on equity Standard deviation Automobiles & ancillaries index 1.06 3.561244 Banking services index 1.53 0.695391 Chemicals & chemical products index 1.53 3.562817 Communication services index 1.54 21.75133 Construction & real estate index 1.92 26.57946 Construction materials index 0.77 23.65846 Consumer goods index 1.72 8.326452 Energy index 1.36 2.520609 Food & agro-based products index 1.45 7.826624 Hotels & tourism index 1.33 18.53691 Information technology index 0.35 1.677905 Investment services index 0.24 1.035782 Machinery index 1.26 7.248118 Metals & metal products index 1.3 16.62944 Pharma 1.63 86.75429 Mining index 0.34 6.509317 Textiles index 2.05 167.5378 Transport services index 1.68 2.88037 Wholesale & retail trading index 1.68 34.62297 In this table textiles sector have very high debt equity and not ordinary deviation between companies. High standard deviation mean that in textile sector, some companies has very low debt and some has very high. It is india’s one of the oldest and major export sector too. Highest deviation and irregularity in debt is not a better sign. So need an attention on capital strucre determinant of Indian textile sector.