See IPOs of Rs 40K cr, QIPs of Rs 20-25K cr in FY18: Kotak Investment Banking

In the next financial year one is likely to see IPOs from Hudco, NSE, Central Depository Services and also beginig of SBI Life IPO process, said Jayasankar.

Below is the verbatim transcript of V Jayasankar's interview to Prashant Nair & Reema Tendulkar on CNBC-TV18.

Prashant: We are wrapping up Financial Year 2017 on a pretty strong note as far as the capital market business is concerned, I mean initial Public Offerings (IPOs), qualified institutional placements (QIPs), M&A briefly could you just describe your experience over the last one year compared to what we have seen say for example the year before and then we can talk about the future?

A: So Fiscal 2017 has been an outstanding year as far as the IPOs are concerned. We saw a fairly good breadth, few companies from financial sector, few companies from consumer and retail and also other companies from commodities healthcare and so on.

In that sense it was a very good breadth. Also, if you look at the companies that meant into the market last year, these are all exceptional companies, great financial track record especially on growth and margins.

Also, investors these days are looking far more carefully at return ratios, so many of them had some great return on equity and return on capital employed. Very good efficient business models, so investors liked the depth and quality of management teams, the quality of promoters, the quality of companies and as a result what you have seen is that the companies that went IPO probably have given far significant returns as compared to the broader Sensex or the Nifty.

Reema: One of the big trends we saw in FY17 was the Central Public Sector Enterprises (CPSE) exchange traded fund (ETF) route and I think Reliance Mutual Fund raised more than about Rs 10,000 crore by the three tranches. Do you think we have juiced out the most from the public sector undertaking (PSU) companies in terms of the secondary markets or is that also going to be a big trend for FY18?

A: I think that will continue to be a big trend because investors are finding these CPSEs to be quite attractive. There is a certain immediate pop that you will get upon allotment and then the overall sector is doing well, the PSUs are doing well across the several segments. So we continue to see fairly strong interest for CPSE. You will see probably far more flow into next year also.

Prashant: If you look at the last couple of years and I am referring to a Credit Suisse report and they have analysed IPOs over the last five years or so and they came to the conclusion that almost more than 30 percent of the money raised by IPOs are from financial sector companies. Companies in the industrial brick and mortar segments have not raised that much money. Do you think that will continue to be the trend as we see it because these IPOs are also coming off from broader economy, the one sector which seems to be doing well and booming is the financial services space so we see more of those companies making into the public market?

A: That is a pretty valid trend. I think this trend of 30 percent of the money raised in IPOs or QIPs for that matter will continue to be from the financial sector. You just look at the allocation of the FII portfolio or the mutual fund portfolio, roughly 30 percent of their funds are allocated towards the financial sector. That has been true historically, I do not see any reason why that should really change. Secondly, this year I am talking about Fiscal 2018 is likely to be more dominated by financial sector. I think it may even exceed 30 percent.

The reason is for the first time you are seeing a greater breadth within financial sector coming to the IPO market for example you will see general insurance companies coming to the market, government has already announced a few companies, you are going to see re-insurance companies coming to the market. You are going to see probably some life insurance companies also getting further listings in the market.

You will see NSE being listed, so you are going to see a greater breadth across the financial sector outside of the banking, which used to be the dominant trend. So, you are going to see a greater breadth, you will see financial sector contributing this year perhaps to even higher than 30 percent.

In fact my overall estimate is that the financial sector may raise as much as Rs 40,000 crore on a conservative basis in fiscal 18. The IPO market even if it were to double, if it were to go up by about 50 percent last fiscal year we raised about Rs 28,000 crore so assume that Rs 28,000 crore goes to Rs 40,000 crore, QIP market again will double from somewhere about Rs 12,000-13,000 to about Rs 25,000-30,000 crore. The dominant theme is going to be the financial space.

Reema: FY17 belonged to telecom in terms of merger and acquisition (M&A) activity. For the FY18 which sectors do you see a lot of M&A activity?

A: At this point in time we are seeing conversation across several sectors. We are seeing far more domestic activity as well as we look at our pipeline. I would say the two broad themes would be a fair amount of proportion of domestic activity in M&A as well as across sector.

You have seen bulk of the M&A activity in telecom, it will play through with the rest of the consolidates during the Fiscal 18 and I think the trend for M&A also continues to be as strong.