Lot of FII money coming out of Indian equities going back into the primary market, says JP Morgan's Rohit Chatterji

Firstly, it's going to introduce an element of volatility in the markets in general, because people will try and make a guess as to where the ball's going to go on the field next and try and position their business plans and their strategy for what they think will happen when things settle down. It will mean that they'll have to reassess components of their supply chain, it'll mean that they'll have to figure out exactly where some of the acquisitions need to be made to try and position themselves for where sourcing's will happen and where value will be created.

It'll be interesting to see how it plays out and when you think about outbound (activity) from the region and Asia-Pacific. There's going to be a greater focus on the opportunities in the US that investors from Asia will now have to start thinking about seriously.  Also, with dollars coming into Asia, which markets do they go in, what's going to happen to the operating competitive advantages of some of these Asia Pacific businesses in light of the changing world order with the Trump tariff? So, it'll be interesting to see how this plays out.

When it comes to the “confidence index,” where does India rank as an investment destination for both global investors as well as MNCs when you compare it to some of its peers in the Asia-Pacific region? Where does India rank in the pecking order?

India is a continuing story of being a very strong and attractive market for people to invest.  Now, I'm setting aside short-term points of view around valuation, but if you think about the digitalization of the economy - the entirely brand-new emerging business models that get facilitated by digitalization, the long-term consumer demand, the need for healthcare, the need for infrastructure, the need for industrial capacity in many sectors – then this is a very long-term growth trend. People are underwriting, whether through FDI or through portfolio investments, the trend that they believe will prevail for the next 10 years. I think valuations aside, that is a very attractive component of that market.

If you think about where growth is going to come from in India, a lot of it is domestic. It is a lot easier to factor in a point of view around that, relative to an export-driven growth that tends to get a little bit more focused on the regulatory changes and tariff changes that may enable some of those markets to be hot or otherwise.

Would you stick your neck out and say that India is the hot favourite in the Asia-Pacific region amongst global investors?

For sure. At this moment, yes.

Let’s turn to an unenviable trend. FIIs have taken out more than $10 billion so far this year from the Indian markets. Many would argue that this is part of a broader emerging market sell-off, but the local markets have been hit. You've been a banker both in India and overseas. What do you think is the reason for this sustained FII sell-off and when do you think there would be a reversal in this trend?

I think when you look at portfolio flows, you have to think about the factors driving it.  One is the macro - the US markets have become relatively attractive both for yield and for shorter term points of view around growth. So, money will move out of many emerging markets into that market, and the strong US dollar is a factor as well. Then, the shorter-term points of view around valuations of traded stocks in India, which were quite rich, relative to some of the other regions and opportunities. But, if you notice what's happening with the actual flow of dollars, a lot of the money that's coming out of the secondary markets is going back into the primary market. The demand for the IPOs that are priced well - even amongst foreign investors - is actually very strong.

So, I'm not that concerned with shorter term pullbacks. It's often very healthy. But if you look at the trend and the demand from these investors for primary capital raises, it's still an encouraging trend.

In December, the NITI Aayog came out with a report which said that India had limited success when it came to capturing the China Plus One opportunity, and that there were others like Thailand, Cambodia, Vietnam, and Malaysia that were the bigger beneficiaries. Do you think there is still a window left for India to do better on this front, especially the Chinese economy's 2024 growth rate of 5 per cent is still, the lowest in the past two decades?

I would say that everybody is playing to a slightly different point of view around what they do well. Like, India is a powerhouse in services exports, right? And I don't see that changing. In fact, the trend on that is still very, very strong. Yes, if you're looking for, how do we become a powerhouse in manufacturing, that's a very long-dated theme. Now, we are starting to see some early elements of it, but to move a manufacturing ecosystem takes a longer time. It takes the rest of the pieces to start to fall together. And it also needs to work to people's views about what's going to happen to tariffs long term, cost competitive advantages long term, where do the markets go, et cetera. So, there are a lot more factors.

I wouldn't necessarily conclude that just because some manufacturing has moved to Vietnam, we should make extrapolations about India's ability to compete for some things. Look at what we've got going. It's a lot in services. It's also building out in EMS, autos. So, let it play. I recognize it's not everything, you know, in a short duration.

When it comes to big-bang outbound M&A and I'm talking about deals in the league of Bharti-Zain and Tata-Corus, there have been a few transactions in recent times, but nothing that moves the needle seriously. When do you think these transactions will return to corporate India?

I don't see that (outbound M&A) becoming a very strong trend in the short term, or in the next couple of years.

Why would you say that?

Because the opportunity for investing capital in India and the returns that you can get for incremental capital invested in India is very strong. Now, the underlying growth, the demand, the opportunity is so strong here that if you were to just rank choices, India would probably rank very highly. And therefore, I think capital formation that's happening domestically, I can see that even for strategic investors to be the attractive destination here. For that reason, I'm not sure that a lot of capital moves out of India, particularly for strategic investors. We may see (outbound M&A) in some sectors, where having a footprint in a place like the US is important in the long-term for your strategic direction. Yes, we'll see some outbound M&A but I don't think it's a trend that I'm expecting to play out.

You've been a dealmaker for several years. In recent times, the global funds are signing the biggest checks in India and giving the strategies a run for their money. Some strategies are making a comeback, but it's the funds that are sealing the bigger, majority deals. Now let me divide these funds into three buckets. The global bulge- bracket private equity funds, the sovereign funds and the pension funds. Which of these three will be most active when it comes to sealing buyout deals in India and why?

You will have continuing interest from the global private equity funds and the sovereign wealth funds, because both of them are seeing their investable pool of capital continue to grow. And when you start to then think about deployment, where do you find growth, and where can you make an investment that you can hold for a 10-year period, I think a lot of those opportunities in the emerging markets rest right here. I think both sovereign wealth funds in some shape or form and private equity funds are going to be very long on India for a period of time. It is also built on pattern recognition and success and funding elements of capacity creation that you think are going to be picked up for the domestic market without necessarily having to depend on global macro or regulatory changes. India is a place where a lot of those opportunities lie.

What are your top sectoral picks when it comes to M&A in India in 2025?

Looking at where we are active, I would say it is infrastructure, renewable energy. There's a big ongoing need for capital when it comes to green transition and there's a lot of global financial and strategic interest in that. I would add healthcare, pockets of financial services, banking, insurance, because that's another way to play the Indian economy. I would say those are the more active sectors and business services in some shape or form.

You mentioned renewable energy. Is ESG still a buzzword or are different companies looking at it in different ways?

They are looking at it in different ways. I don't think we see the word ESG used as often in that format. But the fact is, every corporate in some shape or form is looking at what their strategy is for dealing with the transition to green. You don't need to be an energy company to be focused on it. You can be a manufacturing company, you can be a services company, but everybody is thinking about how to address this longer-term trend towards creating more sustainable sources of energy. I think India is going to be a player in that trend for the long term.

It also means that people who invest in that sector - both financial investors and strategists - will look at a market like India and say, ‘Look, they are doing the right thing. There is a long way to go. Here is an investment I can make and sit on for the next 6, 7, 8, 10 years.’

It’s not just the private sector. Recently, there was an example of two large PSUs ONGC and NTPC tying up to strike a mega deal in the renewable energy segment. So, everyone is taking net zero targets seriously.

Absolutely.

Rohit, let’s take you back to the beginning of your career. You cut your teeth as a manager in ICICI Securities and that was during the 90s during which there was a listing boom. Circa 2025 and you are seeing a similar kind of a listing boom with participation from many new and exciting sectors and category creators. What do you think is driving the frenetic activity this time? Despite the markets being choppy, the IPO market is having a party and India is the busiest IPO market in the world.

Over the last 20 years, the biggest opportunity for companies to grow and head to the capital market has been digitalization. And you're seeing it in many forms. You're seeing it create business models in consumer tech. You're seeing it create business models in financial services. Now you're seeing it dis-intermediate many other businesses that existed.

You are obviously seeing it create competencies in tech services that are an export from India to the world. The government has been a hugely supportive enabler of all those changes. And the ability to use that trend towards digitalization to create really scaled up businesses now with great cost structures, profitability and huge addressable markets, has created a very different set of opportunities in an ecosystem where a lot of early-stage entrepreneurs have gone and built very successful businesses that are now ready for going public.

Last year we saw Hyundai Motors launching India's biggest ever IPO. It’s South Korean peer LG Electronics, that's also filed its draft papers for an IPO. Are you expecting many more Asia-Pac majors to look at India as a serious listing destination?

There is a different strategic reason for every corporate to consider a particular option.

Multiples in India would be one of them?

If you're looking at surfacing the value of your business in India, yes, an IPO is a great way to do that. If you're looking at funding your Indian business through local capital, that's another. If you're looking at creating a currency with which you could now acquire businesses locally and grow, that's another one because it's so expensive, you might as well have your own funding currency locally. But there are just as many reasons where you may say, I will prefer to own my business 100%. Like, if it's an integral part of a global supply chain, you may say, now I have an opportunity to build in India, but I would keep it as 100 per cent subsidiary.

I think for each particular client, it's a slightly different reason for why they may consider it (India IPO), but it's also possible that they go down different pathways and have their own conclusions about whether it makes sense for them.

In the past few years, there has been a top-deck reshuffle at many of the top foreign investment banks in India. JP Morgan is one of them. You saw a change of guard, with two new co-heads of investment banking, Nitin Maheshwari and Ravi Shankar. What is your plan when it comes to the M&A vertical in India, and are you looking to reposition your strategy with new heads on board?

I don't think we are planning a change of strategy. Both Ravi and Nitin have been with us for a long time, and they are both very successful leaders, that we've built internally. I think it's continuing to execute what we've got going. We have got great momentum in this market, whether it be on the capital market side or on the strategic M&A side. They have a good track record and we have got good traction with a lot of clients. We remain very, very focused on doing the right thing, bringing good ideas, executing well for our clients here. I don't think it necessarily represents a change in strategy.

Are the fees growing by the way?

Well, they (fees) are growing for the right deals now, so they're getting better.

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