Infrastructure will offer opportunities:Morgan Stanley

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Co-Head of the Asia Pacific region at Morgan Stanley, Rohit Sipahimalani finds India an active market for M&A, along with peers like Singapore and Korea. But he also points out that the valuations are not cheap in India now, which could be a cautious sign for overseas companies that trade at lower valuations. 

 

Sipahimalani finds pharma, oil & gas the sectors that may see outbound M&A activity. Telecom and technology are attractive M&A spaces according to him. He also says the banking sector as hot space for M&A, but finds valuations a concern.

Excerpts from CNBC - TV18's exclusive interview with Rohit Sipahimalani:

Q: Is India very hot from the M&A perspective? Do you sense a lot of action happening in the Indian M&A, particularly on the technology side?

A: Generally, there is a lot of activity going on in Indian M&A market. This year in Asia Pacific, it is right up there in terms of M&A volumes along with Singapore and Korea as the two other large M&A markets in the region. It is a very active market and we have been seeing it across sectors, it is not just technology.

You will also see a couple of large high profile tech deals announced with KKR's acquisition of Flextronics Software and EDS' announcement for acquiring control and stake on Mphasis . It is not limited to the tech sector, you are seeing it in telecom, pharma, etc. It is broad based.

Q: In terms of price and valuations, how have you read these deals, particularly the EDS conditional open offer on Mphasis?

A: In any situation where one is talking about overseas companies buying into the tech sector in India, valuations in India are not cheap right now. The stocks have seen a lot of run up, particularly for some overseas acquirers who themselves don't trade at very high multiples; it is not an easy step to take.

Having said that, for some of the large global players, some of the midcap companies that they are targeting are still relatively quite small compared to their overall size. India is strategic, it is becoming important to have a global delivery platform, where India plays a critical role. So acquirers are looking at it in that perspective. But valuations are an issue because of which one is not going to see a flood of such transactions. One will see some, but some of them are concerned about valuations.

Q: Where do you see the next big deals happening, in telecom or pharma? Which spaces look the hottest to you now?

A: Inbound, there are overseas companies buying into India. Telecom is a very attractive market. It's the play on the Indian economy on the Indian consumer. Telecom is one area, where one is going to see activity.

In technology, one continues to see things happening, but that is not much in the Indian market. It uses India as a base for global expansion.

One is going to see outward M&A. We saw  Dr Reddy's , Ranbaxy and others make acquisitions overseas.

In the oil and gas sector, one is going to see the state owned companies and others make acquisitions overseas. These are some of the sectors, where we expect to see activity. But generally speaking, inward M&A is likely to be outside the tech sector, in any sector that gives exposure to the high growth of the Indian economy, which people are looking at.

Q: What might constitute that aside from telecom. Any undiscovered stories that you think might start getting picked up?

A: It is not undiscovered. Even if one is talking about things like cement, Holcim's acquisition of Gujarat Ambuja  is a play on the growth of the Indian economy and the Indian consumer. So the question is where targets are available and where there are opportunities. It is difficult to pin point specific sectors, but infrastructure is a sector, which is going to offer opportunities. It is a play on the growth of the economy. Normally, banking would be a natural choice, but given the restrictions in terms of foreign ownerships, that's a constraint for banks in India.

If one looks at China, a lot of foreign investment and acquisitions are coming in to stakes in Chinese banks because they see that as the best way to play the economy in China.