India remains a bright spot among global equity mkts: BofA's Guenthardt

In a Q&A, Bank of America's Head, Asia Pacific Investment Banking, says you don't need a bull market but predictability and stability to execute IPOs

The meltdown in shares of new-age technology companies has been a global phenomenon and investors will continue to be receptive to initial public offerings (IPOs) by good Indian tech firms, says Peter Guenthardt, head, Asia Pacific Investment Banking, Bank of America (BofA). In recent months, BofA has handled several large share sales despite challenging market conditions. In an interview with Sundar Sethuraman, Guenthardt says you don’t need a bull market but predictability and stability to execute IPOs. Edited excerpts:

How has the year been so far for the Asia Pacific region as far as fund raising activity is concerned?
 

After the initial shock of Covid-19 in 2020 and during 2021, the market across Asia Pacific was extremely favourable. We saw a cooling off in the second half of 2021, especially in China, which has continued into 2022. In some other markets, such as India and Thailand, we continue to see strong activity in 2022. That is largely because most of them have strong domestic liquidity and a reasonably favourable economic backdrop. Having said that, no market is completely immune from the global turmoil.
 

What's your outlook for the remainder of the year?
 

The market is open for transactions like block trades and qualified institutional placements (QIPs), which can be executed in a short period. IPO activity will remain muted globally. An IPO in India from launch to completion takes four weeks. It's very challenging to predict how the market will behave for four weeks considering the uncertainty and volatility. It’s easier to execute blocks and follow-ons because you have a reference price, and you can execute it quickly.
 

Some of the recent domestic IPOs had to take a valuation cut. Will this continue?
 

Multiple aspects go into the pricing of an IPO. First and foremost, you're going to have a peer group benchmark. If the peer group comes down, then it’s likely that your reference price will come down. The other thing is because of the volatility in the market, you are probably going to have a situation where investors are going to expect a bigger discount versus the peer group for the risk that they take. So, you can get IPOs done at the right price but their valuation may be lower than where it would have been six months or a year ago. The predictability of the business is also important. Investors, at the moment, wouldn’t necessarily want to go into something very cyclical. And they would like to see growth and want to have companies that are either profitable or with a clear path toward profitability.
 

IPOs by new-age tech companies last year, showed that investors are willing to back businesses with no profitability in sight. Has that situation changed?
 

I don't think the Indian market has lost the appetite for new-age tech companies. Tech valuations have come down globally. That's the same in the US as well as in China. Investors will be receptive to good Indian tech companies, if and when they come to the market.
 

We've seen India outperforming global peers in the secondary market. Is that optimism reflected in the deal-making as well?

It does get reflected on a relative basis. India is a place where investors are happy to invest in the current market environment. India continues to be one of the few bright spots in the global equity capital market (ECM) calendar, both in the IPO as well as in the follow-up market. You just need to price them in the right way.
 

How insulated can India be to the global headwinds? We are seeing FPI selling this month. Even the domestic support is waning. How will these factors affect the deal pipeline?
 

At the moment, it's fair to say that investors are cautious. But we don't necessarily need to have a bull market for us to be able to do deals. The most important thing to be able to execute successful IPOs is the predictability and stability of the market. We'll be able to do deals once there is clarity on where the US interest rates will be. This is a very challenging environment to do deals in, because of the level of uncertainty. Once we have some level of stability in the market, even if the outlook is not good or if interest rates are higher than they were 12 months ago, it's something that you can price in, and so investors will be happy to put the money back. Volatility is the single biggest problem when you want to do IPOs.
 

What is BofA’s India strategy as an investment bank?
 

India is a critical market for us. We have an outstanding team of experienced professionals focused on providing the best service and advice to our clients. Our franchise has had a great run over the last few months helping open the equity capital markets with a number of deals. In many markets including India, we have competition from our global peers as well as more regional or domestic-focused banks. We define which companies we believe are the right ones for us to bank and be associated with. There are companies that we believe that the investors want to buy. Investment banking is all about consistency, persistence and focus on the right client and then providing the client with good advice.
 

We provide best-in-class sales, and trading services. We continue to make sure that we provide the best advice to our corporate clients on the deals that our institution is focusing on.