The correction in the markets has had multiple impacts and while it has led to stalling of many private equity-backed IPOs, it has also created many opportunities in the form of decent valuations.
The correction in the markets has had multiple impacts and while it has led to stalling of many private equity-backed IPOs, it has also created many opportunities in the form of decent valuations. Dharmesh Mehta, MD and CEO at Axis Capital, tells Bhavik Nair that PE players have the capital to deploy and the correction presents a good opportunity for them to deploy these funds. Excerpts:
How will the volatility in the markets impact upcoming IPOs?
Definitely there will be an impact on the IPOs. The window for IPOs has almost shut down for the time being. But then, these are volatile markets and you do not know when things start getting better. Currently, the market is dependent on a lot of factors which are difficult to predict —mainly rupee, oil , global volatility, interest rates, elections, etc. As you must have seen from the number of filings, people are ready to launch as and when the markets stabilise. Once the markets are stable, good quality IPOs will go through if they are at attractive valuations.
Has the correction in the market created opportunities for PE players?
Absolutely! PE players have been waiting for a correction and they will be looking at the sectors where some serious correction has happened. If you look at the large caps space, the correction is not that huge and stocks are trading at a decent valuation. The mid-cap segment is where the maximum correction has happened. PE players will also look into a lot of the IPOs that are stalled today— either to anchor them or to acquire a large stake in them. Definitely, there is a lot of opportunity and PE players have the capital to deploy.
Do you think the market correction has taken away exit opportunities from PE players? Do you think they will hold back from exiting their positions in the coming months?
Yes, currently the exit window is shut but the majority of them is in no hurry to exit. They will wait for better market conditions to exit as they have the holding capacity.
What is your outlook on M&A activity?
M&A activity picks up when companies are available cheap or when the confidence rises in the markets. Once there is confidence in broader markets and conditions, one will look at acquiring companies. Or due to the large NPAs in the system, one will get many cheap acquisition targets. This is apparent from the bids that you have seen in the NCLT cases. Once we have a stable government, the confidence will be back and the risk taking appetite will go. As a result, M&A activity looks very promising in the current year.