DAILY VOICE | Thanks to abundant liquidity, 2021 will be a strong year for IPOs: Anuj Kapoor of UBS India

The outperformance of many recent IPOs in the secondary market augurs well for the other issues in the pipeline in the coming months across a range of sectors including consumption, lending businesses such as NBFCs and housing finance companies, insurance and technology, Anuj Kapoor – MD and Head of Investment Banking, UBS India said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpts:

Q) It has been a pretty good year for Indian primary markets. Many big-ticket names got listed on the bourses thanks to upbeat sentiment on D-Street. What do you make of the fund raising and what is the outlook for 2021?

A) Equity fund raising by listed companies hit a record high in 2020 despite the drying up of the IPO pipeline in the first half of the year due to the coronavirus pandemic.

However, in the second half of the year, IPO activity picked up against a backdrop of improved macroeconomic factors, improved secondary markets, and the upturn in sentiment at the time of the vaccine breakthrough.

However, the surge in equity markets is due, primarily, to the massive amount of liquidity injected into global financial systems by central banks.

It has provided investors with confidence that markets will continue to be supported by government balance sheets and persuaded many to look beyond 2020 and price companies based on their expected performance in 2021 and 2022.

In light of the abundance of liquidity and the buoyant secondary markets, I expect 2021 to be a strong year for IPOs in India.

The outperformance of many recent IPOs in the secondary market augurs well for the pipeline in the coming months across a range of sectors including consumption, lending businesses such as NBFCs and housing finance companies, insurance, and technology.

Q) What about QIPs? Do you see any increase in funds raised via this route as well? What does the trend suggest when compared with previous periods?

A) Volume-wise, 2020 has been the best year to date for equity fund raising in India which has been dominated by QIPs, rights issues, and block trades.

Banks and financial institutions moved quickly to issue QIPs both to shore up their capital base in anticipation of the economic fallout from the spread of the pandemic and to take advantage of the positive market conditions.

The trend is likely to continue, as many PSU banks and smaller private banks have yet to raise capital in the way large private banks did this year. Nonetheless, I expect QIP volumes in 2021 may be slightly lower compared to this year.

Q) It has been a tough year for everyone but UBS has been part of many big-ticket transactions. Does the trend give you confidence about India Inc. which is now better prepared to face challenges in 2021?

A) This has indeed been a record year for UBS in India.  We have managed marquee transactions in both equity and debt capital markets, and continue to be very busy on several M&A transactions.

2020 has been a roller coaster of a year with the pandemic, initially, shutting down the global economy and prompting the deepest recession since the 1930s. However, the collapse was followed by record highs in global markets.

The unprecedented impact of the pandemic on public health and the economy in India has wrought significant disruption on a range of sectors but the economy is starting to recover.

Recent corporate earnings have been encouraging, and India Inc has shown resilience in moving quickly to realign corporate strategy through cost rationalization, deployment of technology, etc. to face potential challenges including a second wave of the virus and further lockdowns.

It is the speed and extent of the recovery in corporate earnings that will dictate market valuations going forward.

Q) Stocking to growth - India GDP data for the September quarter was better than expected. Do you think the deal activity will only rise in 2021? What are your estimates?

A) Aided by the stimulus, advancements in medical technology, and the evolution of the economy, we expect the economic recovery to be rapid. Nonetheless, the spectre of the second/third wave of the pandemic and increasing geopolitical tensions could slow the pace of recovery.

M&A activity was slowed by the pandemic, especially in Q2 as companies and investors turned inward to focus on their own businesses/ portfolios.

But, certain sectors are now beginning to rebound, and we expect the momentum to continue to build leading to a rise in M&A activity in 2021.

Much of the capital raised in 2020 took the form of ‘confidence or contingency capital’ to cushion against the impact of coronavirus.

Coupled with a strong recovery in global markets, Indian equity markets reached record levels in 2020 and I expect them to remain in a sweet spot in 2021 although it will be difficult to replicate the ECM volumes for the previous year.

Q) Which sectors likely to hog the limelight in the next 12 months?

A) Typically, financial Services is the most prolific sector in terms of new-issue volume. I do not see that changing in 2021, but the focus will shift to smaller private banks, PSU banks, and NBFCs.

While some business models in the sector have been challenged, others are innovating and /or consolidating through inorganic growth. Resilient business models will always remain attractive to investors.

Equity market issuance in the coming months is likely to be dominated by resilient sectors like consumer, technology, and chemicals.  It will be some time before the hardest-hit sectors such as hospitality, real estate, entertainment and retail, recover.
Q) Your key learnings from the difficult year - 2020?

A) Coronavirus has accelerated significant change and transformation including inter alia: a decline in equity prices; liquidity stress; financial regulation; market democratization; pricing pressure; increased client sophistication; a shift to remote working; and rapid technology advances.

The pandemic will compel the industry to review its strategic agenda, develop and communicate a return-to-work strategy, and ensure that workforces are digitally enabled.

In March 2020, when the pandemic struck, capital market and M&A activity in India had started slowing down and it seemed like it was going to be a very tough year.

However, the massive amounts of financial stimulus globally buoyed both investor confidence and liquidity and provided a fillip to markets. Given the uncertainty regarding future lockdowns globally, the level of market volatility is likely to remain elevated.

In light of this, we will continue to advise clients to take advantage of windows of opportunity and raise capital when it is available rather than delay until the need for it is critical.

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