CY21 will be defining year for start-up listings, says Atul Mehra

More companies will prefer a domestic listing as it will bring more visibility, says Atul Mehra

A bunch of new-age companies are proposing to list in India, says Atul Mehra, managing director and co-chief executive officer (investment banking), JM Financial. In an interview, he tells Ashley Coutinho that more companies will prefer a domestic listing as it will bring more visibility. Edited excerpts:

A number of firms have tapped the market for initial public offerings (IPOs) this year. What are the reasons for this renewed optimism?

The euphoria on IPO Street has been fuelled by excessive liquidity flowing from generous stimulus measures of central banks. Investors also believe in India’s stronger-than-expected economic recovery, healthy earnings growth, and low interest rate regime. A majority of IPOs have listed at significant premiums to their respective IPO offer prices, and many have fast-tracked their fundraising plans. Domestic and global investors are keen to back companies that have managed to deliver good results.

The average number of retail investors subscribing to new offerings has nearly tripled after the outbreak. What are the factors contributing to this and what pitfalls should investors be mindful of?

Primary markets follow secondary markets with a lag. We have seen secondary markets deliver great returns, with daily trading volumes increasing to about Rs 26 trillion and number of demat accounts crossing 50 million. The robust listings have encouraged higher retail participation. Just 4 per cent of household savings are invested in equities as an asset class, and the growth of financialisation of savings will further aid participation of retail investors. However, investors should be mindful of the quality and valuation of stocks.

Does it make more sense for start-ups to opt for an overseas listing?

Start-ups that generate a majority of their income in India are likely to opt for an Indian listing. An IPO increases their visibility and rubs off on their business model. 

Nazara Tech and EaseMyTrip, which were subscribed above 150x, demonstrate investor appetite for issuances by such firms. Some start-ups proposing to list in India will emerge larger in their respective sectors in terms of market capitalisation, thereby bringing in more visibility among capital market investors. On the contrary, listing in the US may not get them the same attention as they would be categorised as small-sized companies in those markets. Calendar year 2021 (CY21) will be a defining year for start-up listings in India, as firms with a proven track record are expected to launch their IPOs.

What does the pipeline look like for qualified institutional placements (QIPs) in 2021?

After the outbreak, we saw many companies, especially in the banking sector, raising funds via QIPs. More than 25 issuers have raised over Rs 70,000 crore via QIPs, including large private sector banks like ICICI Bank, HDFC Bank, Kotak Mahindra Bank, and Axis Bank. 

PSBs such as Bank of Baroda, Canara Bank, and Punjab National Bank have also gone for QIPs. It continues to be the most optimum route. We expect more corporate houses and banks to tap equity capital markets. 

The SPAC phenomenon is gaining ground abroad, particularly in the US. Is India ready for it? 

We believe that over $100 billion was raised by more than 200 SPACs in the US in 2020. The concept has attracted a lot of attention recently with ReNew Power opting for the SPAC route to list in the US. Although the idea is quite nascent in India, it’s a good alternative to help start-ups list where the level of business understanding, valuation, and risk-taking ability is high.

One should welcome the steps being undertaken by the regulators to enable such a framework in India through the IFSCs. However, some regulatory changes are necessary to facilitate listing of such companies, which do not have any underlying business. 

Which sectors will emerge as sweet spots for mergers & acquisitions?

At $82 billion, Indian M&A activity was quite strong in CY20 despite the disruptions. Telecom, energy, retail, and internet accounted for roughly 60 per cent of deal value. Divestments of non-core assets have picked up in the private and public sectors, with leading corporate houses focusing on improved capital allocation and the government accelerating its disinvestment programme.

Social distancing norms and restrictions will strengthen health care, pharmaceuticals, and e-commerce and we expect investments or M&As to continue in these sectors.

Overall, we expect robust M&A deal making in FY22 on account of vaccination, low-cost financing, and increased optimism.