IPO market to perk up in the second half of 2016, says BofA-ML

The year 2016 has been a year of initial public offerings (IPO). IPOs have mopped up over Rs 8,000 crore in only the first half of this calendar year. In an interview to CNBC-TV18, Raj Balakrishnan, Managing Director and Co-Head of Investment Banking at Bank of America Merrill Lynch (BofA-ML) said the IPO market is extremely strong, adding, "From mergers and acquisition (M&A) perspective, we are going to see interesting announcements very soon," he added.From an e-commerce capital market perspective, IPOs are atleast 10-12 months away, he added.From here on, Balakrishnan said the IPO market in the second half of this year is expected to be even stronger than the first."There have been some secondary exits and the market is quite receptive to those; our IPO pipeline does include an equal balance of primary capital raising and secondary exits, strong responses," he added.Below is the verbatim transcript of Raj Balakrishnan\\'s interview to Reema Tendulkar and Nigel D\\'Souza on CNBC-TV18.Reema: Take us through how you foresee the outlook to be in the second half of the year first with respect to initial public offerings (IPOs) and then mergers and acquisitions (M&A)?A: Sure, from an IPO prospect the pipeline looks extremely strong and at Bofa ML filed for 4 draft red herring prospectus (DRHPs) in the last month ICICI Pru Life, L&T Technology Services, Aster DM Healthcare and PNB Housing Finance, so I would expect the second half of this year from an IPO perspective to be stronger than even the first half.From a M&A perspective, I think there is a lot of deal activity that’s on, there is a lot of dialogue so hopefully we will see some interesting announcement during the second half as well.Nigel: You are expecting more announcements in the second half and the time to go which sectors can be look at cements, cement we have seen a couple of big deals, is it IT what’s your sense?A: I think M&A dialogue tends to be across sectors, but obviously we work on a lot more M&A deals than those that ever get to the finishing line, so let’s keep our finger crossed and hope some interesting deals get announced.Reema: You are saying that the second half is going to be significantly better. Give us some rough sense in terms of the size and do you think pricing will continue to remain as benign as has been in the first half of the year which has helped investors make a lot of money, would you recommend this euphoria to helped investors to make money in most of the primary issuances.A: I never recommend people to get euphoric, as banks what we always try to do is strike the right balance between the interest of issuers and investors and that’s what people have been doing and that creates a win-win situation for everybody.Nigel: What’s your sense, India Inc not looking at fresh investment?A: That’s actually not true, there have been some secondary exits and the market is quite receptive to those, but if you look at our own IPO pipeline for example we have got a good mix of deals which will involve secondary exits and deals which involves primary capital raising, so I think people are looking at both options and investors are more focussed on the story and the right stories are getting very strong responses.Reema: Valuations appeared to be quite stretched given the big run up that we have seen in the secondary market, is that going to throw some cold water on M&A deals?A: I think from a M&A perspective what you look for stable valuations and if you look at the market over this year it has been on a steady up move, yes there has been volatility from time to time, so I don’t really see that as acting as a constraint for M&A deals right now.Nigel: But what about the sectors that had been struggling, the real estate of the world, the metal stocks of the world, the cement stocks we haven’t seen an IPO coming in that segment for a while now, do you expected to come at least maybe in the next year, in the next couple of years what’s your sense?A: Two years is probably too longer timeframe, I do think we will see some real estate investment trust (REIT), I think that’s been a lot of progress that’s been made on the regulation there, so that’s something that I would expect to see. Metals and mining I won’t expect an IPO in the near term, but there could be follow-on offerings.Reema: What about e-commerce, what’s the pipeline looking over there in terms of listing or fund raising or M&A?A: I think M&A has obviously happening in the recent past there been a few deal announcements. I think the fundraising environment is obviously become a lot less euphoric than it was say 6-12 months ago with people taking a much more hard-nosed approach towards the investments they are making and from a capital market perspective IPOs are probably still at least 12-24 months away.