A Rajagopal, managing director ? South Asia at Standard Chartered Bank says conditions in the primary market have improved with the sentiment now much better in the secondary market. Rajagopal tells Samie Modak that despite cut-throat competition in the investment banking space, there is an opportunity for merchant bankers.
After the success of Muthoot Finance IPO, can we say that the primary markets are back on track?
I would think so. After the outflow of funds by foreign investors, especially in the first two months, the trend has reversed and we?ve seen about $1.3 billion of net inflows for the year. This is a good precursor to a healthy climate for IPOs or FPOs.
A large number of companies are waiting on the sidelines to raise money?
By and large most of the good quality companies will be able to come to the market. I can?t think of too many sectors where there is too much of a push back from the investors? side and a transaction cannot happen. Clearly, it has to be at a valuation which investors are comfortable with.
Has selling deals to institutional investors become difficult under the current environment?
We haven?t had too many deals in Jan and Feb. The most high-profile deal was Tata Steel, which did well. The reason some of the deals didn?t come to the market was that there wasn?t much FII demand was not there. Clearly when money is going out of the country, primary market gets impacted.
The prices of 60-70% of the IPOs that hit the market last year are below the IPO price. Wouldn?t you say there has been some mispricing?
I am not trying to defend the under-performance, but it is also important to look at the performance of some of the larger IPOs. The most successful IPO last year was Coal India, which has done extremely well for investors. My view is that you should look at a weighted average kind of return.
Standard Chartered has set up a fairly new investment banking team. What are the challenges ahead?
The challenge is clearly one emerging from competition. If all your underlying assumptions on growth pan out, obviously the market will become $2.5 trillion in 3 years and the number of billion dollar companies will go from 200 to 500.
What will be your focus area?
We have a product offering that is going to be even more relevant to our client base. We?ll be targeting clients of the bank, that will be the focus for us. Earlier, we were not able to help our clients who were doing IPOs or follow-on offers or international offerings, raise that capital. But increasingly we?ll be in a position to do that.