Expect India to be busiest Asian market for IPOs in 2024 with bigger deals: Citi Asia's Udhay Furtado

Udhay Furtado, Co-Head of Asia Equity Capital Markets at Citi

"India is in a little bit of a Goldilocks scenario if I can call it that. It is in a sweet spot and you can see that when we talk to investors." That's the word coming in from top dealmaker Udhay Furtado, co-head of Asia ECM (Equity Capital Markets) at investment bank Citi, who spoke exclusively to Moneycontrol's Ashwin Mohan during his recent visit to India.

Furtado, an alumnus of the University of Oxford, expects bigger, global headline-grabbing IPOs from the country in 2024 which could be the busiest market in the region. He is betting on consumer, technology, healthcare and industrials as the busiest sectors for equity capital market deals.

In 2023, Citi India worked on deals like the blockbuster $365-million Tata Technologies IPO, the $630-million Cube Highways InvIT listing, and the $280-million Brookfield India REIT QIP.

Furtado also highlights that private equity activity is higher in India than the rest of Asia even as he shares that big global brands will be tempted to list here.

Excerpts from the interaction:

The year 2023 was rather forgettable for the IPO market in Asia with share sales by Asia Pacific (including Japanese) firms plummeting by a fifth in value till December 15 to $229 billion, according to LSEG data. What are some of the major equity capital market deal trends you see shaping up for key Asian economies other than India this year?

It wasn’t a great market globally (last year) with the rate momentum being a key driver. The market took some time to digest where we were getting to in regards to rates. We have momentum again around the perception of rate cuts and inflation adjustments, primarily driven by the US, which has driven the market movement in the second half of the year when you started to see a thaw in the IPO markets. We are coming into this year - again a little bit following the US - with more momentum around IPOs reopening. So, we are optimistic in seeing more happening on the IPO side.

If you think about what’s happening around Asia and the number of companies in the IPO queue, India clearly stands out with large, innovative, exciting companies. In a lower rate environment, people should be looking for growth, and India is the place you go to for growth equity. So, we’re in that sweet spot from an investment perspective and with great companies, which are still private. There is a large private ecosystem that is going to allow us to see some supply to the IPO market.

The rest of Asia is a bit of a mixed story, which lends to India being a standout story. You do see the re-emergence of Korea and South East Asia. In China, there are macro fundamentals that need to be corrected before the market really comes back there.

Other than factors like expected political stability and policy continuity after the recent state elections favouring the BJP, are there any other key reasons why India is a red-hot market for equity capital market deals?

This stability, continuity, lower-risk, and macros, are all important factors for investors basing their capital. It opens up a more multi-year view of the investment climate and risk appetite towards India, which is clearly benefiting the companies coming to the market. A number of other factors, which are well understood, are the country’s young demographics and growth. Going sector by sector, there is a depth of corporate formation, capital formation, and innovation across sectors – whether it is consumer, tech, or healthcare.

We see a number of IPOs out in the market right now and we will continue to see block activity. All of this will propel (other) companies from coming to market. These are very exciting companies. So, investors are getting access to that and there are underlying growth themes.

Do you expect India to be the busiest market for IPOs in Asia in 2024 when compared to other markets like China, Singapore, Hong Kong and Japan?

Yes. I think we ended last year overtaking Hong Kong. As a business, we, of course, hope that all of these markets are coming back. But India is the busiest place right now. It has got a head start from some of the other markets. We are going to start seeing the bigger yields and I think some of these deals will be global headline grabbing.

Last year, India saw around 57 mainboard IPOs and most of them were smaller and mid-sized listings. But many of your peers believe 2024 will be a bigger, bolder year for IPOs. Do you expect multiple billion-dollar-plus IPOs this year?

I agree we will see bigger deals. The confidence is increasing. The first innings was at the end of last year. We started to see the demand multiplier – whether domestic or international – coming around for those transactions (at the end of last year), which give issuers and practitioners such as us confidence of sizes, depths of market, and appetite in these deals. We should start to see these big IPOs happening in 2024 and the next couple of years across a number of segments.

Consumer retail-facing businesses are going to be very appealing because we are in a growth dynamics which, relative to the rest of the world, is at an elevated level. We should see it around some of the tech-linked businesses, because again, as we see rates decrease, we should see an appetite for growth and valuations, which should be appealing for some of those high-growth sectors. We will see activity more broadly too, whether it is industrials, multinationals, or India exposures. We will see those kinds of deals coming.

In the second half of last year, PE investors diluted large chunks of stake at one go and exited portfolio companies through mega block deals. The $893-million Coforge - Barings deal and the $833-million Embassy Reit-Blackstone deal are classic examples. Do you expect that trend to continue here and have India's Asian peers seen similar deal action?

The level of sponsor activity here appears to be higher than the rest of Asia. Actually, if you look at the global markets, in the US, this is (a) bread and butter (activity). We have a well-developed, entrenched, funding ecosystem from sponsors for investment through to monetization.

We have found that pathway in India. It’s great to see that we can get monetisation and exits, and the liquidity is supporting that in this market. It does create a virtuous circle for financing for entrepreneurs, start-ups, and our growth businesses, so we can attract that type of sponsor capital in the beginning, because they need to have confidence around that monetisation. So this market will continue to see that.

We have a large number of companies whether it has been pre - IPO, early stage investing from VCs and sponsors, and we will continue to further that trend of monetisation activity later on. Just given where the markets are, we would expect block secondary market activity to be a large portion of the capital flow here. It also ties into the domestic choice – domestic investors are coming into the public markets, and we are seeing a replenishment of capital around these businesses. That should continue.

But has Asia seen this kind of activity (block deals) or is it there in other parts?

It should be, but it’s probably not as high as it is in India right now. But I think it will come. Part of that is really tied to markets in North Asia (particularly China) being more subdued, but there has historically been sponsor, family, monetisation of blocks, in all of those markets. Right now, India is probably at the highest level of activity.

According to recent reports, South Korean automaker Hyundai is eyeing a big-bang India listing. Are you expecting a lot of MNC's to evaluate a listing of their India units here?

This is a little bit core to Citi. The MNC traffic is what we have built Citi for. We are the MNC bank. We are obviously helping Indian companies offshore but we are also helping multinationals onshore. As the market matures and evolves here, there is going to be a great domestic financing capability, which again, is how we think of MNCs in the US, Europe, or in Japan. They have been doing this globally for years and years, so why wouldn’t they do that in India? Also, 20 years ago, we would have been pitching for Indian companies to list in the US. But why would we need to do that if the market here has evolved and matured to this extent? And that’s part of the evolution of this market.

I do think we will see more in the local market – the size of the local liquidity, there is a catchment to that and there should be an appeal to big global brands being listed here, and big global businesses that face Indian consumers to be listed here, as we see the global supply chain in certain segments of the market move into India, you should be able to finance that in the bond and equity market. I think we see that as part of the natural evolution of the market. We should see more. And from a value standpoint, it is attractive. This is one of the most attractive markets on a relative value basis so corporates will be looking on how to access the capital.

Going ahead, what are your top three sectoral picks for ECM deal activity in India be it IPOs, block deals, QIPs and preferential or rights issues?

We do expect to see IPOs come on strongly. Globally people will start getting deals done before the end of the year. In India we seem to have worked through the political noise. We have a few quarters where we will see more IPO activity. Blocks and secondaries continue to be a big phenomenon or big percentage of that volume. I think we should see more QIPs. Businesses are looking at the growth outlook and are increasingly confident about their own prospects. If you think about equitizing balance sheets, you should see a bit more on the QIP front.

So your top three sectors would be...

From an investor standpoint, we should be seeing a little bit more focus on some of the high growth segments as mentioned – consumer, tech, healthcare, industrials.

What are your plans for Citi's India ECM vertical going ahead and when will you find a replacement for your outgoing ECM head Arvind Vashistha?

India is a huge part of our business, whether it is New York, London, Hong Kong, we have our most senior ECM (equity capital markets) bankers around what we are doing in India. We are looking at continuity during this period. We will be making sure we have a senior person in the seat. If you speak to most of our compatriots on the Street, they look up at Citi as being a leader for this product in India and it is a very attractive place to be if you think about our franchise. We are expecting to fill that very soon.

Read | Citi's equity capital market deals spearhead Arvind Vashistha quits; may join rival JPM

From a resourcing standpoint, India is a core part of our franchise, so we continue to invest globally in our capabilities in where we need to be, and the India ECM is very much a part of that. People do really look at Citi as being a front end of what’s happening at ECM. There is great confidence. No one else on the street has that corporate bank, commercial bank platform. It is impossible to replicate. It takes years to build that. So, for an ECM banker to sit with these companies which we finance, that is very unique. That adds to our franchise’s strength.