How do you read the appetite for equities now, especially the PSU stocks
We will probably reach the half-way mark or may be 70% of the R30,000 crore disinvestment target if the NTPC sale goes through. There will definitely be appetite for NTPC and Oil India too should get done but there isnt too much time so some may get left behind unless we see a repeat of 2004 when everything got bunched together in the last one month.
The rally in the markets seems to be driven by liquidity rather than any upside to earnings growth
Although FDI is down, what triggered the rally is announcements like allowing FDI in retail in September and some more positive action from the government. While the sentiment had weakened substantially on account of policy inaction and flip-flops over the last 18-24 months, September onwards there was a certain momentum. Flows are like water and will find its own level and over the next one or two quarters we will know if flows sustain. As an investor you look for an in-and-out spread, or if you are a long-term investor then you would obviously go through the fundamentals, growth drivers and state of the economy. The secondary market flows need not necessarily reflect in primary market flows or the underlying drivers of the growth. Till December there were not many IPOs and the catching up happened only later.
So do you see a lot of money being raised this year
I think 2013 would probably see a fair degree of correlation coming back between primary and secondary markets because several companies, who want to raise capital, are ready with IPOs or QIPs. The recent set of actions from government is more substantive especially on the current account management side, and is giving us a sense of change. In the past, secondary market inflows used to result in primary market issuances but people were circumspect this time and in the run-up, from September to December, there wasnt any action of the kind that we saw in 2009. At the time, many of the companies that wanted to deleverage, especially the realty firms, quickly launched QIPs.
So youre saying there is enough of an appetite
Unless there is something adverse in the budget, foreign flows should sustain. If there is some bad news it could result in a pullout and some primary issues that do not have a strong a story to sell will suffer. Also, any political event that takes place, ahead of the anticipated time would be an important factor. Otherwise at this time, I don't see too many dark clouds. The IPO pipeline is pretty active compared to the last six months back and there could be some QIPs in the financial services space. Companies in the infrastructure sector may not be able to raise money in the immediate future as they still need a policy push on resources. A new story or a well-run company, even in a mature sector, will find investors. Locally, apart from the insurance companies the domestic mutual funds also have money. Its true there are outflows from equity schemes at an incremental level but there is nevertheless a corpus that can be put to work. You cannot ignore the DIIs especially in large issuances.
Where does the retail investor come into all this Does it make sense to have a retail quota in IPOs
Unlike in 2004 or 2005 or even 2007, I do not think that the retail investor is back in the market. Most retail investors have cashed out in the rally rather than stay invested in and we are not sure if they are coming back. But if mutual funds get their act right in terms of distribution, then like in the West, retail money could start flowing through mutual funds. As for the retail quota, it does not make any difference as long as fungibility is allowed and as an issuer you would be neutral to that. Is the objective of the retail investor participating in the Indian growth story is being achieved, at a philosophical level I think not.
How do you read the regulators rant against merchant bankers
In an evolving country like ours, the regulated stock markets are barely 20 years old and even within that you need to discount the first 5-8 years since the regulator was also settling in. You will have these mismatches between the evolution of the market and the regulator and we, an intermediary, need to acknowledge that. Regulators, at times, may move ahead of the time for a certain agenda or objective and issuers may then catch up or align. For instance, if there is a safety net, some of the issues that were planned according to the old format may now have to be thought of in the new format.
In principle, equity is risk, so shouldn't you be giving investors a safety net
At a mature level, it should not be there. But you need to be practical because we are not a mature economy. We cant also do away with the retail segment because small investors want to participate. Since the Mahabharata days we are a country of people who want to punt! The intermediaries and issuers need to be mature enough to understand that they will face such issues like mismatch of timings between regulatory initiatives and market's readiness for it.
Is there action in the M&A space
The moot question is how much of fungibility will happen between the capital market path and a strategic sale path. If a promoter wants to exit a business for strategic or family reasons or if one wants a JV partner, the prevailing market situation influences the pricing. Fungibility could happen between private equity fund raising and capital market fund raising. I do not think that fungibility has yet started because PE discussions are typically bilateral. In an IPO, there is a process and one never knows how long the markets will sustain, what price discovery will happen. Many PE players who invested in 2005-07 in unlisted entities are seeking exits. Those companies would either do a secondary PE deal or opt for an IPO. The exiting investor might want to wait for another year and do an IPO for better price discovery.
These are tough times for investment bankers, bonuses are small
Bonuses have been selective and averages do not matter. But, yes, there is a rationalisation of the talent pool and costs need to be taken into account. Foreign players operating in India have a different approach to India compared to the domestic investment banks, they can switch on or off India in a very modular or incremental manner. For them, all said and done, India is a dot in the map. Equally, they get the benefit of the global infrastructure of people but have higher fixed costs. Indian entities do not have that luxury as their model would necessarily be different. I do not have the benefit of a network of global offices or teams so my approach to fixed costs will be very different. As a consequence of being an Indian business I need to be figuring out my cost model and its revenue productivity for the cost. We have a certain fixed cost and whatever we do that can not dramatically come down. I cannot sack half my team because then my capacity will drop even more so the question that then arises how I maximise the revenue for that.
Do you think it is still important to have a global tie-up
Our distribution strengths come from the reasonably strong franchise that we have in the institutional distribution business on the broking side. Today issuances are led by institutions. That is why we are motivated to be a part of the government issuances however little the money is. If NTPC is a good paper, we as a house want to be in that because investor clients on the brokerage side would like us to take this paper to them.
Is your distribution channel strong enough like that of a Citi or a Morgan Stanley
In my belief yes because our performance of a win in an FPO or a QIP is just as good as anybody else's barring one product which is block-trades, where underwriting capabilities come into play. There you necessarily start with underwriting. Beyond a point, banks cannot underwrite an issue due to capital market regulations of the RBI.
How is the tie-up with SMBC coming along
We have seen a good set of enquiries in the last two months. Their reach in the Japanese market is phenomenal. The enquiries are across sectorsindustrials, manufacturing, financials, consumers, little bit of healthcare also. Not necessarily inbound but a joint venture kind of thing.