We have added ECM advisory; will expand debt advisory services: Rothschild & Co India Head Chandresh Ruparel

We are one of the most active global investment banks in India, advising on 13-15 transactions in a year. India, as a market, has always been a priority for Rothschild & Co and this is evident given our consistent focus and long-standing presence since 1999. With the maturity in India’s IPO market, the size of offerings as well as the established governance standards, we have also expanded our advisory services to include ECM advisory, which involves providing advice and support right from the planning stage up to the successful listing – this is particularly valuable to our global clients looking at assessing an Indian listing, financial sponsors, companies operating in sectors that require an equity story to be communicated properly or where a number of stakeholders with varying objectives need fair independent advice as opposed to just putting a listing through.

We will gradually expand our debt advisory service as Indian companies explore various options to raise debt or restructure including through structured instruments, special situations, or even project finance/infrastructure debt.

With global interest rates likely to decrease, how do you anticipate this shift will impact dealmaking activity in India and globally?

For India, lower US interest rates generally translate into an eventual stronger rupee, which can positively impact the economy. A stronger economy and growth would increase India’s attractiveness to foreign investors, thereby boosting capital flows and making India more appealing. Additionally, reduced interest rates often stimulate capital markets, making funding more accessible and possibly boosting valuations.

While interest rates play a role in reducing the cost of capital, dealmaking activity is ultimately driven by fundamentals. The core aspects such as growth potential, scale, and cost structures of companies remain vital. Interest rates may provide a slight improvement to valuations and ease of funding, but strong fundamentals will continue to be the major driver of successful dealmaking.

For India, this could mean increased foreign investment and a more robust economic environment, contributing to a favourable landscape for both investors and dealmakers. It will be interesting to see how the environment pans out as we are in a situation where capital markets on one side and M&A and PE activity on the other will compete quite fiercely at least in the foreseeable future.

Do you think India will be more attractive to investors compared to other emerging markets given the current economic conditions?

Yes, India continues to be increasingly attractive to investors compared to other emerging markets, given the current economic conditions. Over the past 10-15 years, India's market has typically traded around 20-21 times price-to-earnings ratios, but recently it has been trading at approximately 24-25 times. While this suggests a slight overvaluation, it's not excessive, especially considering the strong fundamentals driving the market.

Despite current valuations, India's market has demonstrated solid earnings per share (EPS) growth. If continued investments enhance corporate profitability, it could drive further growth in valuations, making the market more attractive.

Companies in India are generally well-positioned with strong balance sheets, which support ongoing investment and expansion, contributing to economic resilience and growth.

India is seen as a leading destination for foreign investment among emerging markets. The inclusion of Indian sovereign bonds in global indices, such as the JPMorgan index, highlights growing international confidence in the Indian economy.

The Indian economy is considered a bright spot globally. As other emerging markets face various challenges, India's stability and growth prospects make it a compelling choice for investors seeking reliable returns.

Could India’s prospects of generating better returns ('alpha') outweigh the broader risks associated with emerging markets?

Despite global uncertainties and occasional geopolitical instability, India's market has demonstrated resilience. Valuations are currently slightly elevated compared to past averages, reflecting confidence in India's economic stability and growth prospects. This stability is crucial as it supports a steady investment environment, even if alpha generation might be limited due to higher valuations.

The trend towards moderation in market valuations is partly due to the current high valuation levels. While this may suggest more modest short-term returns, the overall economic stability and growth potential of India provide a solid foundation for sustained performance. The market's ability to maintain steady growth despite the global political and economic situation highlights its robustness and ability to absorb and adapt to various challenges.

Are you seeing signs of private capital expenditure picking up in India? What factors are driving or hindering this trend?

States are actively working to attract both domestic and international businesses. For example, Tamil Nadu's recent roadshow in the US highlights state governments’ efforts to entice investment. Such initiatives are creating a more favourable environment for private CapEx by offering incentives and simplifying the process of setting up operations.

Funding is increasingly accessible, with financial institutions becoming more willing to support capex projects. The RBI's emphasis on boosting corporate credit over retail lending is also contributing to this trend.

Certain sectors are witnessing significant interest. Industries like industrials, defence, and consumer goods are seeing renewed capex as businesses look to expand their operations. For example, the defence sector, including defence ancillary industries, is experiencing growth due to increased demand and government focus on enhancing defence capabilities.

There is a shift towards more sensible business models. Companies are not just chasing growth but are focusing on sustainable and profitable expansion. This cautious approach is encouraging private players to invest in capex that aligns with long-term business strategies.

While India has made significant strides in attracting investment, streamlining bureaucratic procedures and ensuring regulatory consistency would foster a more favourable business environment and accelerate capital investment

Capex tends to follow demand. Many industries are operating at 65-70% capacity utilisation, and significant new investments typically occur when utilisation rates approach 80-85%. As we move towards higher demand levels, we may see more substantial capex.

Which sectors do you expect to see the highest deal activity in the coming years, and why?

In the coming years, several sectors are poised to experience significant deal activity due to a combination of economic growth, evolving market dynamics, and investment opportunities. Pharma & healthcare, consumer, financial services, infrastructure and industrials will witness a great deal of activity.

Ongoing advancements in medical research and drug development present sufficient opportunities for M&As, as companies seek to expand their portfolios and capabilities. Additionally, as disposable incomes rise and consumer preferences evolve, there will be increased investment in the consumer goods sector.

How do you foresee investments in new technologies, such as hydrogen and energy storage within the renewable energy sector, evolving?

The Indian government's ambitious green hydrogen targets under the National Hydrogen Mission, coupled with supportive policies like the PLI scheme, are creating a favourable environment for investment and domestic production. Industry leaders are actively exploring the potential of green hydrogen in various applications through pilot projects. As demand for clean energy surges and technology advances, India’s green hydrogen and battery storage sectors are poised for substantial growth. While significant progress has been made, the full impact and effectiveness of these initiatives will become evident as the sector matures.