Market volatility may delay new IPO launches: S Ramesh

Last year saw a buoyant initial public offering (IPO) market and many of them performed significantly well post listing, says S Ramesh, MD and CEO of Kotak Investment Banking.While the IPO pipeline for 2016 looks strong, ongoing market volatility and headwinds in secondary capital market may delay the pace of launches, Ramesh tells CNBC-TV18.Referring to the significant growth in inbound and outbound mergers and acquisitions (M&A) last year, he says, inbound activities will continue to grow in information technology (IT), pharmaceuticals and healthcare sectors. Below is the verbatim transcript of S Ramesh’s interview with Reema Tendulkar & Nigel D\\'Souza on CNBC-TV18.Nigel: Last year if we just take a look at IPO market there was a bit of a resurgence that we saw in comparison to the previous years. What is your sense – 2016 are we going to see a high amount of IPO’s? Is there going to be more money raised from there and also what is the ticket size you think that we could be looking at?A: We saw a very buoyant IPO market in calendar 2015. We saw the markets take a number of IPO’s from very interesting sectors, interesting companies spread around consumption themes, around the healthcare and pharmaceutical, around automobile and automobile related. We saw some interesting sectors. The good news is many of these IPOs also performed well post listing. The pipelines continue to big good. In fact if we look at the last quarter of 2015 calendar as well as what we see in our pipeline I think there are a number of interesting companies. Having said that, I must say that currently there are some headwinds in the secondary capital markets. These headwinds do tend to sort of, in a little way impact the pace at which IPOs can come. The IPOs that we saw last year and what we continue to see in our pipeline are roughly modest IPOs, not more than Rs 1,000 crore. Many of them have financial sponsor and private equity investors who want to partially monetise their stake, they have invested in these companies a while back. The sectors around which these IPOs are around the consumption theme and the healthcare sector in particular. So, that is a quick snapshot of how we see the IPO pipeline.Reema: What about on the divestment front? 2015 has been another washout year we have barely managed to raise Rs 20,000 crore vis-à-vis the Budget of Rs 69,500. Is 2016 also going to be a very slow year in terms of what the government can rake in via its divestment program? What would your own estimate be in terms of a divestment figure in the Budget?A: On divestments I would say that it is a play on the primary market in some way. When there are volatile market, when the market have in the last two-three months not continued to do that well I think it does impact any offerings that we make. So, divestment would not be an exception to it. I have a few points to make on divestments, the government if we look at the experience sometime back they have even in challenging markets done some good offerings and got them done. Having said that it is a time to probably look at increasing the bouquet of companies because we have seen the oil companies, we have seen Coal India; we have seen NTPC so it may be good time to increase the bouquet of companies that would get divested. May be it is also good to have a few IPOs in them because as the basket becomes larger I think the disinvestment program in which in my judgement now would need to be annuity given the need for the country, it will offer a bigger bouquet of companies to grow. To address your question specifically I would say that one of the challenges that has been there in the last two or three quarters for the government is many of these divestment programs have been in and around the metal and companies of that kind which have had their own challenges. So, I think these sectors themselves are facing headwinds and those headwinds need to settle down. It will be an interesting time for the government to engage with investors, have some of the companies do road shows, identify companies which can be sort of a part of an annual program. Some of these things will augur well when the disinvestment programs happen. These are good companies greatly profitable very large, generally monopolistic or duopolistic in play. So, I am sure that when they come to the market at the right time the response would be good. Lastly, we are also hearing that there are democrats and other advisors who are likely to be appointed to sort of help in the operations of this company. So, some of this will also sort of make these companies get sharper and therefore get more liked by the investors when they hit the markets.Nigel: One question then on mergers and acquisitions activity. Of late we have been seeing so much of currency movement do you think that is a bit of a headwind in terms of mergers and acquisitions (M&A)? Everyone is talking about buying out companies etc, I track the steel sector over there, the metal sector there is no money over there. Only the IT space is the space which is sitting on money. Do you expect mergers and acquisitions activity to pick up in 2016 and what about the currency fluctuations? How is it impacting it?A: At a general level I would say that across the world and therefore also in India the currency is something we have to keep a watch on. Having said that when we looked at the statistic from merger and acquisitions last year calendar 2015 we saw close to all kinds of activities about USD 47 billion was done. Out of this about USD 16-17 billion was private equity so if you look at the M&A which includes domestic and the foreign M&A that was close to USD 30 billion. Out of this USD 30 billion our analysis showed that inbound and outbound grew quite well. There was a little truncation which happened in the domestic M&A. It did come down a little compared to the previous year, that was understandable because they were a couple of large transactions in 2014. Additionally, corporate are also setting right their balance sheets so some of that stuff is happening so that is sort of understandable. We continue to see reasonably robust interest in inbound M&A particularly around IT, healthcare and the pharmaceutical sector. So, some of that continues to see interest. One notable thing that I want to talk about is we must highlight the scale of private equity capital that is coming into the country. We have seen over the last three-four years that the capital markets have been a little seasonal. They do remain shut for two-three months for primary market offerings. Therefore this form of private capital is serious money it is available to the deserving players at the right valuations and on the right terms. That is something that corporate India should take note of because for their plans and for some of the current stresses that is the capital that is really available.