Foreign investors may stay away from share market for few quarters; divestment may be a challenge | INTERVIEW

Up until the recent wave two of Covid-19, India was seen as an oasis of stability and potential relatively higher growth, and hence incremental FII flows were coming our way.

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Foreign investors have recently turned net sellers of domestic securities. (Image: REUTERS)

Foreign investors have recently turned net sellers of domestic securities as India battles a severe second wave of coronavirus. As developed markets inch closer to normalcy and India faces fresh lockdowns, global investors may look towards other markets instead of India for a few quarters, said Sumit Jalan, Co-head of India Investment Banking & Capital Markets, Credit Suisse in an interview with Kshitij Bhargava of Financial Express Online. Sumit Jalan also sheds light on how well India Inc is prepared to face the challenges emerging from the second wave and more. Here are the edited excerpts.

Till last year, we were talking about things going almost back to normal in India, but the second wave is likely to delay the recovery. Do you believe foreign investment could take a hit this year? 

Up until the recent wave two of Covid-19, India was seen as an oasis of stability and potential relatively higher growth, and hence incremental FII flows were coming our way. However, with the intensity of the second wave we are facing and the bounce-back of larger developed economies from the pandemic, global investors have options to invest away from India, and this trend may continue over the next couple of quarters.

Divestment plans didn’t exactly go through last year for the government, will this fiscal be different or is the pandemic again likely to play spoilsport?

Divestments have structural elements to them which don’t change, and given the pandemic and the temporarily reduced investor appetite for India, this makes both capital flows and complex deal-making more challenging.

At this juncture, how well placed is India Inc to tackle the challenges emerging from the second wave? 

Entrepreneurial risk appetite in India is generally in a cautious zone at present, other than in some emerging and new economy sectors such as healthcare, consumer and technology-linked sectors. Also, overleverage on corporate balance sheets has largely been resolved in the last several quarters through debt reduction, lower capex and equity raisings. As such, we expect primary equity into businesses may remain low, except for the sectors mentioned.

How does the situation look in terms of promoter pledging? What sectors seem vulnerable in this regard?

Promoters have largely avoided pledging in recent quarters; rather, many have attempted to repay and reduce their borrowing. Companies in traditional sectors and conglomerates have, however, continued to borrow selectively. Real estate, infrastructure, and illiquid cash flow businesses remain vulnerable.

Zomato has already filed its DRHP. Do you see other big internet names rushing for IPOs this fiscal year?

The capital market is the eventual destination for most forms of private investing, and India has a robust equities ecosystem. We expect market windows to be volatile in today’s VUCA (volatility, uncertainty, complexity and ambiguity) world, but opportunities in markets will continue to emerge that will be constructive for many kinds of IPOs to get done eventually. Internet and the digital economy remains a top preferred theme.

Do you believe some of the companies that are expected to list domestically, could instead be eyeing foreign stock markets?

With new trends such as SPACs and potential direct listings of onshore domiciled companies, issuers may consider a number of listing options depending on their strategic objectives. In certain cases, an offshore listing may make sense, but in the majority of cases, the robustness of the Indian capital market allows most marquee investors worldwide to still participate in a domestic listing in India.

After the budget, we heard a lot about more REITs and InvITs possibly coming along, we’ve seen PowerGrid InvIT, could there be more such assets on their way to Dalal Street?

Credit Suisse advised on the first InVIT and REIT listings in the country, and we have seen increasing appetite from investors and a more sophisticated understanding from the regulators which bodes well for further listings from such companies offering an attractive yield and quality assets. This asset class diversification is positive for the Indian investor base and for sectors such as real estate and infrastructure.

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