 "India's growth story remains compelling for MNCs: Sunil Sanghai")
The deal pipeline is expected to be good given the global liquidity situation and growth opportunities in India, says Sunil Sanghai, managing director and head of global banking (India), HSBC. The bank had handled three big deals recently, of Jet-Etihad and open offers by GlaxoSmithKline and Unilever. In an interview with Samie Modak, he says the investment banking business remains volatile and one cannot afford to rest on past laurels. Edited excerpts:
How is the deal environment in the country and what's the outlook?
India remains a very powerful investment destination, globally. Its long-term growth and consumption story is still attractive. Accordingly, we should continue to see substantial inbound interest across the spectrum of industry sectors.
In the past three financial years, FDI (foreign direct investment) equity inflow into India has remained stable, averaging $25 billion a year. Global companies are looking for the right investment opportunities. The challenge we see is in identifying feasible options and in certain situations, the regulatory framework. We will also continue to see activity on outbound M&A transactions.
Of course, given the global environment, Indian companies will be very strategic and selective — most deals will be moderate, relative to the size of the acquirer. Overall, we expect inbound and outbound deal flow to remain healthy.
What kind of deals are expected? How is the pipeline for large transactions?
The pipeline is largely influenced by factors like the regulatory environment, opportunity to deleverage in a growth market, global liquidity and strategic reasons like opportunities for inbound or outbound inorganic growth. Given the global liquidity and growth environment in India, moderate to large transactions will continue to happen and these will be largely sector-agnostic.
Given the recent regulatory changes in aviation and retailing, we might see more deals in these sectors.
Further, whenever the Insurance Bill goes through, we will see action in this area as well. However, one might not see much activity in power utility and infrastructure, as these are going through some pain. On size of transactions, with the growth of Indian companies and the economy, the market cap of Indian companies is going up, resulting in bigger deal sizes.
Two multinational consumer firms have announced open offers this year. What is making these MNCs raise stakes in their Indian arms?
In times when global corporate giants are sitting on surplus cash and there is an apparent lack of global investment opportunities for this surplus, India offers an attractive proposition. The growth story here is compelling. These global corporates already have a good understanding of the Indian context and have been performing well locally. So, an added accretion is in sight and attractive. Additionally, the regulatory clarity helps them make open offers to raise their stakes.
HSBC has fared well on the league tables so far this year. What has been the strategy? How do you expect to continue with the momentum?
The investment banking business tends to be volatile -- when you work on a transaction, you know it sometimes could take a long time to fructify or not happen at all. In this business, each deal is a new start and one cannot afford to rest on past laurels. We continue to focus on servicing our clients and maintaining a constant dialogue with them.
Do think Indian companies can meet the public shareholding deadline? Will the market be able to absorb that much supply?
There is enough FII (foreign institutional investor) flow coming in and there is a good appetite for the expected issuances. If you put it in context, the previous financial year had a little over $25 billion of FII equity inflow and public issuances aggregating to just under $10 bn (including government offer for sale transactions).
How is the deal environment in the country and what's the outlook?
India remains a very powerful investment destination, globally. Its long-term growth and consumption story is still attractive. Accordingly, we should continue to see substantial inbound interest across the spectrum of industry sectors.
In the past three financial years, FDI (foreign direct investment) equity inflow into India has remained stable, averaging $25 billion a year. Global companies are looking for the right investment opportunities. The challenge we see is in identifying feasible options and in certain situations, the regulatory framework. We will also continue to see activity on outbound M&A transactions.
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Of course, given the global environment, Indian companies will be very strategic and selective — most deals will be moderate, relative to the size of the acquirer. Overall, we expect inbound and outbound deal flow to remain healthy.
What kind of deals are expected? How is the pipeline for large transactions?
The pipeline is largely influenced by factors like the regulatory environment, opportunity to deleverage in a growth market, global liquidity and strategic reasons like opportunities for inbound or outbound inorganic growth. Given the global liquidity and growth environment in India, moderate to large transactions will continue to happen and these will be largely sector-agnostic.
Given the recent regulatory changes in aviation and retailing, we might see more deals in these sectors.
Further, whenever the Insurance Bill goes through, we will see action in this area as well. However, one might not see much activity in power utility and infrastructure, as these are going through some pain. On size of transactions, with the growth of Indian companies and the economy, the market cap of Indian companies is going up, resulting in bigger deal sizes.
Two multinational consumer firms have announced open offers this year. What is making these MNCs raise stakes in their Indian arms?
In times when global corporate giants are sitting on surplus cash and there is an apparent lack of global investment opportunities for this surplus, India offers an attractive proposition. The growth story here is compelling. These global corporates already have a good understanding of the Indian context and have been performing well locally. So, an added accretion is in sight and attractive. Additionally, the regulatory clarity helps them make open offers to raise their stakes.
HSBC has fared well on the league tables so far this year. What has been the strategy? How do you expect to continue with the momentum?
The investment banking business tends to be volatile -- when you work on a transaction, you know it sometimes could take a long time to fructify or not happen at all. In this business, each deal is a new start and one cannot afford to rest on past laurels. We continue to focus on servicing our clients and maintaining a constant dialogue with them.
Do think Indian companies can meet the public shareholding deadline? Will the market be able to absorb that much supply?
There is enough FII (foreign institutional investor) flow coming in and there is a good appetite for the expected issuances. If you put it in context, the previous financial year had a little over $25 billion of FII equity inflow and public issuances aggregating to just under $10 bn (including government offer for sale transactions).