Activity in Capital Market Likely to Pick Up Soon
Capital market activity is likely to be even stronger in 2017 as Indian markets are well placed among emerging markets due to the government’s pro-reform agenda, said Ajay Saraf, executive director at ICICI Securities. In an interview to
and Saraf said financials, consumer, logistics, healthcare, technology and media companies are likely to dominate the IPO market this year. Excerpts:
What is your view on the Budget announcements and their impact on markets? We believe the Budget has given a boost to the markets. The focus on increasing consumption through spending on agriculture, rural development and transport infrastructure provides a fillip to the Indian economy. Also, administrative decisions relating to foreign portfolio investors, FIPB — and most importantly not tinkering with the capital gains tax — have signalled a stable tax regime.
Further, the move to reduce cash usage in the economy will strengthen the domestic flows into equity markets through mutual fund SIPs and direct investment and provide a boost to the primary markets. Lastly, innovative ways of fund raising by the government, such as ETFs, buybacks, focus on new listings, strategic sales besides regular disinvestments will maintain a strong momentum in primary and secondary markets.
2016 was the best year for IPOs since 2010. What are your expectations from 2017? We expect India to remain well placed among emerging markets on the back of continued decline of the twin deficits, adequate forex reserves, improving debt-to-GDP ratio and inflation trajectory below the RBI benchmark. The government’s proreforms agenda remains a positive in the medium to long term. These positive macroeconomic factors and a pro-active government would convert into active primary market offerings. We expect capital market activity to be even stronger in 2017.
Many of the stocks that listed in 2016 outperformed benchmark indices. Is that trend likely to continue? The credit for the bullish behavior of investors in the primary market can be attributed to fair valuation of companies, the growth story of India, huge domestic institutional investor base and the involvement of untapped retail base. DII flows have been robust over the past three months driven by strong retail inflows into equity mutual fund schemes. It will be safe to say that if high-quality companies with good growth story or great businesses tap the capital market, we can see the same trend as witnessed in 2016.
What about the Trump impact? We need to wait and see. It is early days. Analysts around the world are saying India would be more insulated from the Trump factor than most other emerging economies. We don’t think it would be something to worry about. A few sectors, such as IT and Pharma, may need to recalibrate their strategy for the US market going forward.
What are the sector themes likely to rule the primary market? We expect to see ECM (equity capital market) activity across sectors such as financials, consumer, logistics, healthcare, technology and media. Specifically we are witnessing some action in the financial sector because of new-age banks and NBFCs such as SFBs (small finance banks) tapping the capital market to adhere to RBI requirements. We can also see some traction in the infrastructure and power sector as InvIT (Infrastructure Investment Trust), backed by annuity asset and toll revenue assets, may tap the markets. Real estate developers are expected to use REIT as an opportunity to unlock value in commercial real estate assets. Capital raising requirements from corporates, PE exits, broadly positive IPO returns for investors and strong demand from domestic investors would be the main drivers of IPO activity.
Blue-blooded investment banks are no more there and domestic investment banks are doing very well, but the overall fee pool is coming down…
For us and most other domestic investment banks, the fee pool would have increased year on year for the last five years. Incrementally, we are getting more mandates. We have benefited from uptick in the market, general activity in the ECM side and also on the M&A side. Most of the IPOs in 2016 were offer for sales, with PE investors exiting companies. Is the trend likely to continue in 2017? Yes, we expect secondary offerings by PE investors to be major component of ECM activities in 2017 mainly because of culminating fund life and salient opportunity to exit. Public market investors are ever hungry for newer stories and they are indifferent between OFS and fresh issue. In the secondary market as well, we can expect large selldowns planned by the government via the block or OFS route.
Sebi is likely to reduce the time between offer closing and listing. What are your thoughts? It is a positive step as it will encourage more investors to participate.
Do you think the government will be able to meet FY17 disinvestment target of .₹ 56,500 crore? There are a few quality companies lined up and there is a second ETF which is also there on the anvil. With the combination of that, it is possible to reach close to that number.
Do you see QIPs gaining momentum any time soon? 2016 was a bit subdued in terms of fund raising through QIP. We expect that to pick up substantially in 2017. Some of the issues which were being contemplated or were deferred will come back in 2017. The market just needs to be a bit stable for a few months for the QIPs to start hitting the market.
Do you see e-commerce firms tapping the primary market soon? E-commerce companies are growing in terms of number of transactions. More and more consumers are getting used to transacting on e-commerce side. To come to public market, they need to get close to being profitable and that is a few years away. It depends upon how soon they will become profitable or at least break even on EBITDA level. That is when it will start to make sense for public market listing to happen.