Ac­tiv­ity in Cap­i­tal Mar­ket Likely to Pick Up Soon

The Economic Times - - Markets: Beating Volatility -

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.

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