Atul Mehra, head, investment banking, JM Financial explains to CNBC-TV18 that the MNC segment of stocks offers a big opportunity and that the market and investors are eagerly awaiting for the launch of the Bharti-Infratel IPO.
Below is an edited transcript of the analysis on CNBC-TV18.
Q: What is the sentiment right now? Are a lot of people talking about deals once again or has the investment banking mood not picked up quite to the extent of the secondary market sentiment?
A: You have asked all the relevant questions and let me respond in a very phased manner. The primary market follows with a lag of the secondary market. Once the mood is buoyant in the secondary market, it has a spill over effect on the primary market. This buoyancy, as observed over the last two decades, it builds up over a period of time.
In the first phase, a lot block trades will be conducted. In the second phase, there will be a lot of QIPs followed by the public markets or IPOs. A lot of block-trades have been conducted over the last one month. We are right now witnessing a lot of QIPs that will hit the market in the next few months and thereafter maybe in the first quarter of the next financial year, you could see a lot of IPOs hitting the market. That is how typically the cycle operates and it is going to be no different this time also.
Q: Do you think the Bharti Infratel IPO could change the situation? It is a large-sized IPO which is hitting the market after a long time. How crucial is it going to be?
A: It is going to be very crucial. Bharti is a very well and respected company. Investors have made tons of money on that stock. I think investors and the entire trading community is eagerly awaiting the issue. If the investors make money on that transaction, it will open the doors for many more companies to tap the market.
Right now apart from Bharti, there are not many large-sized IPOs which are planning to hit the capital market. So, probably once Bharti is successfully done, it will encourage lot of other corporates. At this point of time, investors are clear on where they want to put their money.
The flavour of the season continues to be the banking, consumer and pharmaceuticals. Sectors such as construction, EPC and infrastructure are still perceived to be a bit risky and the risk appetite amongst the investors is not very high at this point of time.
Q: Has capital-raising begun in small ways? Two or three QIPs have gone through over the last fortnight. Is that level of activity picking up?
A: Yes, definitely. I can confirm that there is lot of activity on the QIP side and you will see a lot of that rolling out over the next two-to-three months.
Q: What is the mood on government offerings? Is the market eagerly looking forward or is there skepticism?
A: It is a double-edged sword. I would say that one has to be cautious about the divestment. For a good company such as Nalco, I believe that at the right price there will be demand. But the key question is the right price and the right timing. If the government is able to address both issues, it will ensure significant revenue-flows to the exchequer. It will also help the capital markets and boost investor confidence which is very crucial at this point of time. The sooner it happens, the better it is for all of us.
Q: What do you expect from the MNC segment? There have been a few delisting moves over which a lot of investors actually cashed out on and made money. Do you see substantial activity on that front over the next few quarters?
A: Yes, it is a big potential opportunity. The regulator is very, very clear that there will be not be a extension. They have facilitated the exits or a mechanism for the company to comply with the 75 percent holding to 25 percent free-float. They have added a few more options. The regulator is open to allow a few more options.
On one hand, we have these MNCs who have a preference for delisting, but the process of delisting in India is prohibitively expensive exercise. On the other hand, if the company does not want to be a party to this exercise, then the option for them is to sell down. But if you look at the PE multiples at which some of these MNCs are trading, they are ridiculously high.
Any attempt to try and sell the shares of some of these companies at the current market price, is virtually impossible. So then the question is you have to sell it at a discount and that depends on the fair level of discount and pricing.
So I think over a period of the next three or four months, this will become a very interesting sector with the companies either deciding to delist or bring up the free float from the present level to 25 percent.