'India in a sweet spot': UBS India head explains his optimism for 2020

Anuj Kapoor tells Business Standard he believes economy is in 'early recovery phase', resulting in period of low inflation and interest rates.

Despite the coronavirus pandemic, equity capital raising has hit a record this year. Anuj Kapoor, MD and Head of Investment Banking, UBS India tells Samie Modak what have been the key drivers and trends for the primary markets and the outlook for next year. Edited excerpts:

2020 has been a record year for fund raising. What have been the key drivers for this?
 

The main trigger for the surge in equity markets has been the massive amount of stimulus injected into the global financial systems. It has provided investors with confidence that markets will continue to be supported by government balance sheets and persuaded many to look beyond 2020 and price companies based on their expected financial performance in 2021 and 2022. At the same time, the favorable environment has prompted many companies to accelerate their issuance plans. Those hardest hit by the virus, in sectors such as travel, consumer, leisure and entertainment, had to recapitalize their balance sheets. While, healthcare and technology companies, the two greatest beneficiaries of the pandemic, have sought equity financing for strategic or opportunistic reasons. Companies also tapped the markets to avoid liquidity shortages and build ‘confidence capital’ to lessen the impact should the economy deteriorate further.

What is the outlook for the next 6-12 months?
 

I believe we’re in the early recovery phase of the cycle which implies an extended period of low inflation and low interest rates - an environment that, typically, favors equities over bonds. But after such a rapid rebound, an equity market pullback would not be surprising in the short run. While the US election result is behind us, markets may remain volatile given the spectre of second or third wave of the pandemic. Of course, the emergence of a vaccine has the potential to provide markets with a significant tailwind. I feel India should be in a sweet spot and remain constructive on the market outlook for 2021.

Do you expect companies that have filed offer documents pre-covid to come to the market?
 

To date, India's equity markets this year have been anchored primarily on rights issues, QIPs and block transactions but there has been a recent surge in IPO volumes. While market activity can be expected to slow towards the year-end but in 2021, as the local and global economies recover, I expect Indian companies – both those which filed pre-Covid and new issuers –  to seek to take advantage of the uptick in momentum and liquidity via the launch of IPOs. 

How has the complexation of companies that are filing now changed? Has the appetite for financial companies taken a beating?
 

The pandemic has prompted a decline in the number of companies filing for an IPO over the last six to eight months. Some are updating their already-filed offer documents to reflect the changes in the business environment. The next few months is likely to be dominated by issuance from resilient sectors like healthcare, technology, chemicals, consumer and REITs but it will be some time before activity from the hardest-hit sectors, such as hospitality, real estate, entertainment and retail, picks up. Financial services is usually the most prolific sector in terms of issuance volume, and I don’t see that changing in 2021.

What have been the key takeways from recent delistings?
 

In recent months, stocks including Vedanta, Adani Power and Hexaware, have been involved in delisting proposals which have attracted enthusiasm on the part of investors.  To ensure that companies don’t take a revolving door approach to markets, Sebi specifies an elaborate set of regulations not prevalent in other markets for companies wanting to go private. However, in practice, a number of delisting offers remain in limbo due to an unending tug-of-war between promoters and investors. Given that the promoter mopping up a 90 per cent stake is a pre-condition to delist, a single shareholder demanding an outlandish price can scuttle a delisting proposal that has widespread support elsewhere. On the other hand, many promoters, in an inversion of their IPO strategy, choose moribund markets or a sectoral downturn to launch their delisting offers. In light of the above, Sebi could reconsider the pricing formula for delisting.

Will conducting roadshows online become the new normal? From an investment banker’s perspective what has changed post covid?
 

The advent of virtual roadshows has significantly reduced the time, cost and effort associated with marketing a capital markets transaction. The technology has proved to be up to the job and issuers and investors have experienced the ease and effectiveness of online roadshows. Nonetheless, face-to-face interactions are useful in building trust with investors, particularly in the case of a new issuer for which there may be limited historical data. It is clear that the pandemic will compel the industry to review its strategic agenda, develop and communicate a return-to-work strategy, and consider digital enablement of their workforce.