The primary market has not made much noise in the last couple of months although many thought there will be a flood of IPOs since Modi government took over in May 2014. However, quite a few companies raised moiney via the QIP route. TV Raghunath, MD & CEO, Kotak Investment Banking and S Ramesh, Joint MD, Kotak Investment Banking discuss what is the primary market outlook hereon
Below is the transcript of TV Raghunath and S Ramesh’s interview with Sonia Shenoy & Ekta Batra on CNBC-TV18.
Sonia: What is the sense you are getting about how the terrain will look from hereon in the primary market? What the quantum of issuances could look like?
Raghunath: Primary market issuance has two components qualified institutional placement (QIP) which are existing listed companies doing a fresh capital and IPOs which is first time issuers. So clearly post May 16th there has been a lot more of QIPs than IPO but I guess IPOs are going to follow because there is a process that they need to follow.
Ramesh: If I can just add to what TV Raghunath said, we can break up the primary market activities in 2-3 components, the new issuances, the qualified institutional placement (QIP) from the existing companies and the third leg which is disinvestments. So we have recently tested the very successful transaction from Coal India and we do think that the disinvestment window and bucket will continue to remain active over the next few months and maybe the next year as well. As regards, the initial public offering (IPOs) -- I am happy to say that the pipeline is looking good but if you were to look at data from the time the new government has come in or a little earlier to now, it has been a little muted in the context of the overall FII and mutual fund (MF) money that has generally flown into the secondary markets. So we do think that there is cause for optimism as we look at fiscal 2016, issuances from sectors like consumers in a broader light there are a number of issuances that are slated to hit the market. We also think there is interest from the investors.
On the QIP issuances we think that hitherto there was more domination from real estate and the infrastructure sector so that segment is not just catching the fancy of investors, so we will have to wait for sometime. But if you look at banking, financial and the broader consumer segment, QIP issuances have come and I think we see a healthy pipeline and that is the trend we broadly expect to see.
Ekta: I am going to take that point forward when you say a healthy pipeline, do you think that interest from investors is possibly going to be selective because we saw the HDFC Bank QIP which was so successful by then, do you think that maybe another private bank or whichever other bank comes out might see as much interest and separately say something like an ONGC offer-for-sale (OFS) would that garner as much of an interest as an HDFC Bank, so basically would interest be selective or are people looking for more different opportunities to invest in?
Ramesh: The answer is that from whatever investors we have been talking to at this conference and earlier on, investors have become selective when they look at new paper that comes to the market. If you were to take a sectoral cut as I have mentioned a few minutes earlier, the consumer segment in general which covers all formats of consumers, the banking and financial segment is the other segment -- there has been very good interest that we have seen be it banks, non-banking financial companies (NBFCs) and the likes, so whether it is QIP and the other issueances that will come from this segment, we do think there is optimism from investors to look at them very actively.
On the government disinvestment, we have been saying it before, almost all of the government companies are large monopoly or oligopoly players with great financial track record. So disinvestment in general there has always been very good interest from industries all around the world. I would also take the liberty of adding that -- as we have observed the disinvestment programme -- the government has also become very experienced, they understand how to undertake this programme so they also execute and do it well. So the combination of both of these factors we do see good optimism from investors, instead of going into specific names and probably leave it at that because we don’t know exactly which issuances will hit the market at what time but we remain optimistic that the disinvestment programme is slated to do well.
Sonia: What are the key M&A trends that you are expecting from this calendar year itself and what are the sectors that could lead this revival in M&A?
Raghunath: I would like to relate to 2015 in context of how we exited 2014. 2014 saw a revival in M&A volumes to about USD 45 billion up from USD 37 billion in the previous year and that includes about USD 10 of private equity. The sectors to which the money flew is largely driven by new age companies which saw a lot of private equity chasing it. In addition to which an important trend that got set in 2014 was consolidation. So you saw some pharmaceutical consolidation, you saw some banking consolidation and the likes. That arises from the fact that people in the corporate world see a new opportunity in India hence let me garner market share or let me consolidate and get efficiencies so consolidation will continue to be a theme number one for 2015.
Second private equity exits which we are invested in the 2007-2008 era will now seek exits whether or not the private markets or public markets. You would see some bit of strategic transactions happening in these PE led exits.
Lastly, asset churn -- many of the asset heavy businesses particularly infrastructure are seeing a lot of asset churn that will continue for the leveraging purposes. I was in overseas Japan particularly last week and met about 12 corporations there, clearly there is a fair amount of optimism about India -- this is the time to go, we want to start evaluating India so you will see a lot of in-bound interest into partly make in India, partly addressing the domestic consumption story in India, which is there for the next five-ten years to unfold.