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DAILY VOICE | Chinese companies' IPO traffic may shift to Hong Kong from US, says Piyush Nagda of Prabhudas Lilladher

One of the direct beneficiaries of the Chinese crackdown will be the Indian startup space. Ed-tech and fintech companies that are not yet listed will gain more, says Nagda

August 03, 2021 / 07:35 AM IST

Piyush Nagda, Head, Investment Products, Prabhudas Lilladher, thinks that China’s crackdown on internet companies may see the IPO traffic move from the US to Hong Kong. The surprise regulatory scrutiny has already seen five Chinese companies scrapping their plans for initial public offering in the US. Chinese companies have already raised close to $12.5 billion in IPOs in the US in 2021.

The Chinese government’s action could work in the favour of Indian startups in the education and financial space, said Nagda who has more than 20 years of experience in the financial service industry. He has worked with Motilal Oswal, JM Financial and Axis Securities in senior management roles driving pan-India businesses across investment products.

In an interview to Moneycontrol's Kshitij Anand, Nagda due to the uncertain regulatory climate, foreign investors may re-work country-wise exposure and India can benefit from an increase in allocation. Edited excerpts:

What is the Chinese crackdown on education technology companies all about? Can it spread to other sectors as well?

There are a lot of moving parts to the current regulatory backlash in China but the education sector in China has drawn special attention due to socio-political sensitivity.

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It seems like the Chinese government and policymakers believe that ed-tech-driven after-school tutoring is causing social inequality—rich vs poor parents, urban vs rural divide.

They want to regulate off-campus activities, long-term fees plans, etc and reduce education-related pressure on kids and parents.

In the past, we have seen Chinese regulators imposing restrictions on other consumer-facing sectors like e-commerce and fintech. So the likelihood of such restrictions spreading to other sectors can’t be ruled out.

The Chinese government's crackdown on ed-tech companies unsettled equity markets in the last few days. What is leading to the panic?

Country-risk percentage of investing in China has gone up substantially due to such crackdowns.

Fund managers and investors across the world are anxious about such extreme and unpredictable regulatory moves as a lot of capital is tied up in many new-age Chinese companies.

Recently listed IPOs have also seen billions of dollar of outflows lately. Amid the restrictions placed by the government do you think the institutional money will flow into other emerging markets, including India which looks more attractive destination?

Chinese companies have raised record money through IPOs in US markets. Close to $12.5 billion has been raised so far in 2021, as per data from Refinitiv.

Ride-hailing app Didi’s $4.4-billion IPO in June came at $14 per share but due to sudden regulatory backlash from CAC (Cyberspace Administration of China) immediately after IPO, the share prices have seen almost 35 percent erosion.

Due to such surprise regulatory scrutiny, five Chinese companies have already shelved their US IPO plans as per a Fortune report. Chinese companies IPO bound traffic to the US might shift to Hong Kong to some extent.

On the other hand, owing to this uncertain regulatory backdrop, foreign investors might re-work country-wise exposure weights and India could benefit from an increase in allocation if it happens in its favour.

With a string of IPOs to hit D-Street such as Paytm, PolicyBazaar and Nykaa, do you think a lot of institutional money will flow into the IPO market?

Yes, there is a lot of interest at the institutional level to get a slice of fast-growing new-age companies. Zomato’s anchor book got a strong response of bids of approximately Rs.1.45 lakh crore against a reserved portion of Rs 4,195 crore. This shows the institutional appetite for such disruptive ideas.

Are there any listed companies that can benefit from the China crackdown?

Most of the direct beneficiaries of this crackdown will be in the start-up segment, specifically some ed-tech and fintech companies will gain more, which are not listed yet.

Interestingly, many global MNCs are planning China + 1 strategy to reduce business uncertainty due to geopolitical reasons, which will accelerate due to recent crackdowns and could benefit Indian companies in the manufacturing, specialty chemicals, and the textile sector.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Kshitij Anand is the Editor Markets at Moneycontrol.

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