Deal street momentum to continue despite election surprise, say dealmakers

Top dealmakers told Moneycontrol that transaction activity and momentum will continue despite the surprise verdict, as the core India story is intact

The unexpected outcome of the Lok Sabha elections, with the BJP falling short of a clear majority after a decade of dominance at the polls, has ushered in the era of coalition politics once again in India.

Prime Minister Narendra Modi and the BJP are not used to relying a lot on other parties for decision making, and this unusual environment has put the spotlight on the pace of reforms and policy going ahead.

While the stock market recovers after the mammoth crash on results day and corporates closely watch the rapidly evolving environment at the centre, what will be the impact on deal street which, unlike earlier, has seen strong M&A and IPO activity before and even during the polling phase?

Since January 1, as many as 31 firms have listed on the domestic bourses and raised Rs 45,774 crore, according to data by Prime Database. The same period has seen block deal and bulk deals worth around Rs 68, 804 crore by promoters and private equity funds. Not to mention major M&A action with the $8.5-billion RIL-Disney merger or American Tower Corp (ATC) selling its India unit to Brookfield-backed DIT for $2.5 billion.

So will corporates, MNC's and private equity funds be in wait and watch mode?

Top dealmakers told Moneycontrol that transaction activity and momentum will continue despite the surprise verdict.

“The core India story is intact. It will grow from strength to strength. Sector like infrastructure, consumer and data centres will be hot. I think digital themes will grow," says Cyril Shroff, Managing Partner, Cyril Amarchand Mangaldas.

But what about the uncertainty factor as the BJP is forced to team up with its allies in the new government?

Shroff allays any concerns and adds, "The alliance partners are progressive and will support bold policies."

Rahul Saraf, head of investment banking at Citi India concurs with Shroff and highlights the strong fundamentals of the country.

"Once the dust settles, it will be business as usual. The economy is resilient, business confidence remains high and market liquidity is unabated. With uncertainty out of the way, we will see activity levels pick up across equity and M&A. Possibly the big-bang market frenzy which everyone was expecting may not happen, and markets consolidate and strengthen its core here," he says.

What about Citi's top sectoral picks for deal activity?

Saraf responds - "India has seen all round growth so difficult to pick sectors. Infrastructure, manufacturing, and technology form the underbelly for growth."

Referring to India's strong underlying economic fundamentals and the policy thrust in manufacturing and relocation of supply chains as growth drivers for the economy and corporate earnings in the medium term, Amit Thawani, Managing Director and Head of Investment Banking, Nomura India told Moneycontrol that several such sound bites from global investors at the Nomura Asia conference at Singapore this week confirm that investor interest in India and as a consequence, deal making, both on the private and public sides, should be expected to continue.

"In particular, sellers of assets may look to pause briefly to allow the volatility in public equity capital market valuations to settle, but we don’t anticipate any significant impact on deal making in the medium to long term. Private equity activity is expected to be robust this year, both on the investment front, given the significant amount of dry powder available, as well as on the exit front, as financial sponsors look to monetize their investments. Corporates, with their strong balance sheets, are also expected to actively evaluate inorganic growth opportunities to strengthen their product portfolios, distribution capabilities and technology platforms. Equity capital market activity is expected to pick up once the near-term uncertainties reduce. FIIs who have waited out to avoid event risk may look to come back and increase their allocation to India," Thawani elaborates.

Vikram Raghani, Partner and Co-Chair, Corporate Practice at law firm JSA feels, that while the verdict of the 2024 elections was not on expected lines in terms of the margin of victory, the key expectation that the current government will continue, has been met.

"There may be a short period of wait and watch as the new dispensation settles in. Market participants will also want to see how the new portfolio allocation pans out within the alliance. This may be the case particularly in companies and sectors where government involvement is higher such as PSUs. Generally, there should be comfort on continuity and consistency of policies which is key for investments. Deal activity and momentum was robust prior to the elections and we expect this to continue," he adds.

Meanwhile, Atul Mehra, MD & CEO at Axis Capital believes the emergence of a coalition government at the centre will have zero impact' on deal street action.

"Work flow continues and the focus is on executing the deal pipeline," he says.