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Advise caution while investing in IPOs ahead: HSBC
Published on Fri, Jul 17, 2009 at 12:55  |  Updated at Mon, Jul 20, 2009 at 11:17  |  Source : CNBC-TV18
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Investors must be cautious while putting in money into the various initial public offerings (IPOs) that are lined up in the stock markets, Tarun Kataria, Managing Director and Head of Global Banking and Markets - India, HSBC, said. IPOs like NHPC and Oil India would be successful though, he said.


Kataria added that he expects large deals like global depositary receipts (GDR) issuances after the Sterlite ADS issue. Liquidity was a major factor that drove investors to India, he said.

Here is a verbatim transcript of the exclusive interview with Tarun Kataria on CNBC-TV18. Also watch the accompanying video.

Q: How good is the appetite out there? Do you think that you could see more of a flow of ADSs, and GDRs out there—I am not yet talking about QIPs, but, is there an appetite for ADSs and for what kind of companies?

A: We believe obviously there is plenty of liquidity in the global markets. The investor appetite increases everyday for emerging market risk. India remains very much part of the sort of the Brazil, Russia, India and China (BRIC) story which has seen a lot of interest over the last three to four months. So I would suspect there will be a few more large deals that will come through and will get taken up quite well.

Q: Perhaps you could shed some light as you have been around in this business for a long time. If I invested in the GDR, foreign currency convertible bonds (FCCBs) and I am talking as an investor, I am basically selling them at a discount. If I bought in the London AIM, I am sitting with huge losses. If I bought a Singapore-based REIT, I am sitting with huge losses. Can you tell me, what's the motivation for these foreigners to continue to buy because when they finally end up selling, it seems to be at a big discount or at big losses? Exactly, what makes them continue to come back again and again and take a loss?

A:  I can only suggest it is the interaction of the India story. Obviously, the liquidity that you have onshore with the underlying shares is a lot more, so exits and entries are a lot easier. The appetite frankly for India risk remains very high and that’s really what I would suggest is driving some of this. The equity business is on some level a simple business. It is very important to be picking the right names, picking the right stories. I don’t think we are in that sort of euphoric phase that we saw in the fourth quarter 2007 where really anything sold at any multiple. As you start what might be the next phase of sort of a upswing, call it a bull market or whatever you want, you start off by picking some core names, some core management teams and hopefully, if you stay with that story which is quality at the right price, you won’t get burnt and I think Mahindra Holidays that we did last night is a good example of that.

Q: This is specifically related to power IPOs where there is a huge bunching up happening at the moment. How do you see this panning out which means, could we see a big spike where USD 7-12 billion gets raised and then perhaps again that is surfacing out like something like a dotcom where everybody puts the money up, that huge cycle came through and then we have got all the riffraff joining at some stage. Do you think that’s the cycle we are running through especially for power IPOs as they are bunching up right now?

A: As I said you have got to be very careful. If you have got USD 10-12 billion to raise, then you have got to stay with the right guys, who will survive the next four to five years. While I am not suggesting this might be the case—can the power story be what the tech story was four or five years ago? It is entirely possible because there has been so much talk about the absence of power and the need for infrastructure in India. If that’s the story that you’re selling not the underlying company or the underlying management track record or the underlying transparency etc, there is some risk that some of this stuff may in fact happen—the one that you’re talking about. Whether it is power or anything else, you need to careful what you buy.

Q: What about the ECB market? Last time around when there was this kind of competition from the fisc and private sector over the Indian banking sector all through the last four years, the ECB market provided the much needed liquidity. Do you see that riving?

A: Most banks are, sort of, call it, back in business. I think part of the reason why the ECB sort of dried up was because the banking system struggled with what it struggled with over the last 12-15 months. If you look at our own pipeline of what our clients need, I think ECB market is open for them. The question is that whether the capex spend over the next few months is sufficient enough that a lot of ECBs actually get done. But is the market open? Yes absolutely.

Q: Is the view on the rupee one of the reasons why the appetite has improved? There seems to be now a consensus that the rupee certainly won’t under pressure vis-à-vis the dollar.

A: I am sure that is part of it. But, I suppose you can expect the rupee story that was four to five months ago that it is going to reach 55-58—that’s gone away. Three or four months ago, as you suggested, a lot of the banks sort of went down to 44-46 as a rupee story. So yes, if there is some level about the direction of the rupee i.e. not headed down, is another sort of incentive to play the India story, which is, you might do well on the underlying but get killed on the rupee. I think that’s gone away. So yes there may be some element of that.

Continued on Page 2…

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Tags: IPO, Tarun Kataria, HSBC, GDR issuances, Sterlite ADS, NHPC, Oil India, Mahindra Holidays
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