LIC IPO will test India's market depth, says Moelis India's Manisha Girotra

"The LIC IPO will suck liquidity from the market. That's another reason that you will see the markets getting volatile," said Girotra.

The meltdown in new-age tech stocks will bring more rationality, says Manisha Girotra, CEO of Moelis India, an independent investment bank that specialises in fund raising from the private market. In an interview with Samie Modak, Girotra says the LIC IPO will demonstrate that the Indian markets have the scale and the size. Edited excerpts:

Last year we saw record fundraising via IPOs. What are your thoughts on the year gone by?

A whole new sector was created in 2021. That was the most exciting thing. The US and China have robust private and public markets for tech. In India, we only had a private ecosystem that too in cities like Bangalore and Gurgaon. That's changed now. Following coronavirus (Covid-19) pandemic, a lot of tech companies have generated wider scale and seen an acceleration in their growth. Indians have moved into the digital world more rapidly across the age spectrum. As a result, new-age tech companies have been able to attract investors who are deep-pocketed and long-term oriented. Even the more traditional investors have started to invest. It was really heartening to see their IPOs see a lot of domestic investor participation. Throughout my career, the success or failure of an IPO was determined by foreign institutional investors. But it's no longer the case. Which is very good, because, in volatile times like now, there is domestic capital to support stocks. Also, the other important thing is that private equity and venture capital (PE/VC) exits have gotten easier. Earlier in India, the concern was how will you get an exit. That’s no longer the case.

There has been a sharp correction in new-age tech stocks. Will that scare investors?

Over the last few months, we have seen a lot of irrational exuberance. Part of it was because of the excitement around a new sector that was being created. I think the basic principles around the sector remain intact and it will continue to grow.

What you're seeing now is an extreme reaction because of the perfect storm created by a confluence of events such as the US Fed tightening, spike in inflation and oil prices, Russia- Ukraine tensions. You will see more volatility in the near-term. But I am very confident that this will stabilise.

But one positive to come out of this is that the market will be a lot more discerning. There will be a flight to quality. Investors will back companies that have built size and scale as opposed to an also-ran player in the e-commerce or fintech space. And that's very good for a market like India, because we're not that deep to absorb a large number of IPOs. Last year, it had become a sellers’ market. Going ahead, we will see better pricing and a more rational market.

Do you expect LIC’s IPO to be a success?

It is a very large IPO, but it'll get done. What will happen is that it will suck liquidity from the market. That's another reason that you will see the markets getting volatile. I don't think LIC would go for value maximisation. They will make sure there's money left on the table for investors. Also, markets are now deeper than they have ever been. Having said that, the LIC IPO will be the true test of our markets. It will tell us whether our markets have matured to the extent that all of us believe they have. The confluence of events happening on the global front isn’t helping. But I am confident that the deal will get done.

What are your views on some of the regulatory changes introduced by Sebi such as longer holding period for anchor investors?

Sebi, as a regulator, is aware of the market requirement. Changes that Sebi has done were needed because of the volatility. In the initial phase, Sebi made it easier for tech startups to list. Some of the more recent changes are to ensure only the more serious players benefit. It is about ensuring that good quality, resilient IPOs which can sustain business cycles and volatility come in. So if an anchor investor has to remain invested for longer, he will look at the business model much more closely. So I think all the changes are very positive.

The regulators also have to do the balancing act as they need to support tech listings.

Yes. There's a big realisation that tech is going to pivot our growth. All the employment and entrepreneurship that's coming out of tech is going to play an important role in India’s growth. Job creation is a big challenge in India. The startups have sort of demonstrated that they can attract a lot of foreign capital. There is good awareness that we need to take care of this ecosystem, which is positive.

In the US and China, there is a lot of strain and stress between the government and Big Tech. That’s not the case in India. Here the government and startups are working very closely. In fact, the government has always encouraged startups. Also, we don’t have large dominant players like WeChat or Alibaba. In India a lot more players have access to capital. So there is competition in every segment. Whether it is e-commerce, SAAS, fintech.

What are your views on overseas listings?

We should let companies decide whether they want to list domestically or overseas. If the domestic markets are deep enough, companies will choose to list here. Success of LIC’s IPO will demonstrate that size and scale is not an issue in India. But I genuinely believe that we should allow flexibility. There are companies who would want to list overseas for reasons such as ownership or customers. So if a company wants to list in the US, we should allow that. We are not at a stage we were 10 years ago when we didn’t want companies to list internationally.

What will be the dominant themes for 2022?

Tech continues to be the biggest theme. We are seeing a lot of opportunities in renewables and electric vehicles (EVs). EV both a mobility as service as well as battery. That’s where we are seeing a lot of deal flow. IT services and pharma also continue to be the evergreen sectors in India.

What is happening with special purpose acquisition companies (Spacs)?

I think Spacs as a vehicle here is to stay. It's a fast track way of doing an IPO. There was a lot of euphoria around it initially but that has settled down into more realistic values and numbers. Companies will continue to explore all the options available, which includes listing domestically, or in the US or through a Spac.