Current IPO pipeline gives us lot of confidence: UBS India's Anuj Kapoor

Last year, there was a slump in primary market activity due to a combination of global and domestic headwinds. This year holds promise, says ANUJ KAPOOR, head of investment banking at UBS India. In an interview to Sundar Sethuraman, Kapoor says the projected economic growth, positive macro drivers, and India’s demographic are key drivers for the investment banking business. Edited excerpts:

The year 2017 was a record year for equity fundraising. However, things were not that great in 2018. What is your outlook for 2019?

The year 2018 started off well, and there were a few large transactions in the first half of the year, like HDFC Bank. However, as the year went by, the market environment became adverse due to a variety of issues, including the US-China trade war, geopolitical tensions in various parts of the world, Brexit, and election uncertainty closer home. We saw foreign institutional investor sentiment turning cautious with respect to emerging markets. Flows into domestic mutual funds also started petering out. A combination of all these factors made the second half of 2018 quite challenging. Our current pipeline presents a confi­­dent outlook for our business performance in 2019. 

How is the overseas listing scene looking like? Will more Indian companies raise money abroad?

Overseas listing has always been an interesting theme, which I see evolving fast over the next three years. There are a few things which could impact volumes in this space.  

First, the Securities and Exchange Board of India has been working on a paper which would allow Indian companies to list overseas without having an Indian listing.  Second, as the internet technology sector matures, we expect some of these tech companies to consider listing from 2021 onwards. You could potentially see some large Indian companies, who either play on an international scale or are structured through an overseas holding company, opting for an overseas listing.  Some of these business models have been tried and tested in markets like the US and China. Given their structure, they may look at an international listing.

What are the new trends in investment banking fees?

The aggregate investment banking fee pool has been going up, but last year saw a minor blip because of the broader market conditions.  However, given the projected economic growth in India, positive macro drivers and the growing size of the market, I expect the investm­e­nt banking fee wallet to in­c­r­ease.  We have also seen some of the domestic banks getting more active, even while some of the foreign banks like UBS India have been driving their growth agenda in India in recent years.

India leads the major economies with the fastest growth rate in the world, relatively tame inflation, and double-digit gross fixed capital formation. Demo­gra­phics are the economic moat ar­ound India that make it one of the most compelling long-term investments in the eme­r­ging world and hence, a unique opportunity for inve­stment banks.  As a banker, I would only hope the fee sca­les become a bit more in sync with the western markets.

What do you think about the recent regulatory changes which make it easy to reduce IPO size?

The regulatory change is welcome. The ability to change size at a much later stage is something that should be helpful, as it gives more time to respond to a dynamic market situation. Sometimes when you conceive a transaction to the time, you do the roadshow and the time you price, the market environment and investor sentiment could be very different. Hence, your ability to quickly adapt to the changing environment is beneficial. 

More than 75 companies awaiting Sebi approvals for IPOs haven’t hit the market. Why?

The list contains only a few IPOs, which are more than $200 million. Some of them might be exploring alternative sources of raising capital. Some of them will probably wait for the right kind of market conditions, and some will look for a post-election window to hit the markets.

India’s first real estate investment trust (REIT) issuance was a success. How will this impact the realty sector?

REITs are a welcome addition to the Indian capital markets.  Historically, real estate has been starved of capital and has to rely on non-bank money and quasi-equity structures in the private markets.  So India’s first REIT is a positive, as it helps to develop a framework under which a specific category of risk (stabilised assets) can now be pooled and marketed to investors.  Investors in Indian real estate, like Blackstone, now have the option to exit or partially monetise their investments and recycle capital for fuelling future growth.  It is also an interesting investment product for domestic institutional and retail investors.

Lots of companies have come with buyback offers since 2016? Will this trend continue?

Some information technology companies and pharma companies have ample liquidity.  If their board feels the company is undervalued, they may opt for a buyback. We could see more buybacks, considering the cash-rich nature of some of the businesses and lack of meaningful deployment options for that cash.