 "Raj Balakrishnan, MD, Head Investment Banking, DSP Merrill Lynch Ltd. Photo: Suryakant Niwate")
Prime Minister Narendra Modi's sudden ban on old high-value currency has notes caught investors across the globe off guard, just as Republican nominee Donald Trump's sweeping win in the US Presidential election. So, they are willing to cautiously wait before embarking on any new investment, says Raj Balakrishnan. According to the head of India Investment Banking, Bank of America Merrill Lynch, "investors would wait for clarity on the policy direction for the US".
On demonetisation, Balakrishnan says, "It will have some short-term impact, but it will create a conducive environment for foreigners to invest in India. While discussing issues pertaining to fund raising with Vishal Chhabria and Hamsini Karthik, Balakrishnan clarified that his job as a banker is to bring fundamentally good companies to the market and he is not bothered with short-term stock movements".
On demonetisation, Balakrishnan says, "It will have some short-term impact, but it will create a conducive environment for foreigners to invest in India. While discussing issues pertaining to fund raising with Vishal Chhabria and Hamsini Karthik, Balakrishnan clarified that his job as a banker is to bring fundamentally good companies to the market and he is not bothered with short-term stock movements".
What do you expect as the outcome of the US election and how would this alter fund raising plans for Indian companies?
The outcome of the US elections came as a surprise to many - so we expect companies to wait for clarity on the policy direction the new President will set for the US economy. Election rhetoric and actual implementation often differ and, one should note, despite the fear mongering, the US markets have gone up on expectations of a boost to its economy.
Fund raising plans depend on what a company wants to use the funds for and it would be different from sector to sector. For export oriented sectors, companies will have to wait for an appropriate time to hit the markets. However, nothing changes fundamentally for domestically focused companies. For companies in the commodities sector, what happens in China matters more than in the US. There could also be a short-term disruption in domestic growth due to the demonetisation drive as consumption would be impacted.
What could be the implications particularly on mergers and acquisitions (M&A)?
If markets continue to remain volatile then that is not a favourable situation for M&As as a deal can generally take four to six months to materialise. In a volatile market, one does not know the exact price to negotiate and that is why the deal activities might slow down. Over the next three months, investors and corporates would prefer to sit on key decisions and wait for markets to stabilise. Companies, which sell products in the US, might look out for acquisitions there and that is true for both Indian and Chinese companies. However, for all of this to happen, it will take at least a few months from now.
How is the M&As pipeline looking now?
Outbound M&As have been relatively quiet for some time. Over the last six months, the interest for such deals is rising. Investments into India through M&As have been more towards the e-commerce side. The changes announced recently (demonetisation of currency) will, over the next 12 – 18 months, create a conducive environment for foreigners to invest in India. From that perspective, I expect the cost of capital to reduce for investing in India.
We’ve seen reasonable deals happening in the infrastructure space. Is the pipeline here still strong?
A lot of pension funds and sovereign wealth funds have been interested in the infrastructure sector. Also, the regulations around REIT and InvIT have been made more practical now. Therefore, once we get over this period of market volatility, you will see more and more transactions happening in the infrastructure space, where a lot of over-supply was created in the last few years.
Quite a few high profile initial public offerings (IPOs) this year received good response but didn’t see much gains post listing. Are promoters leaving too less on the table?
In any IPO, you go out to the market in a particular range, and investors decide the price at which the demand comes in. If demand comes in at the top end of the range and the deal is oversubscribed there, you aren’t going to price it any lesser. What happens to an IPO on the day of the listing depends mostly on technical reasons. If people buy into an IPO assuming listing gains then that’s not correct. My job as a banker is to bring fundamentally good companies to the market.
In a few domestic M&A transactions, we’ve seen some amount of investor activism…
Investors becoming more active is always good. It’s the job of companies doing the deal and the bankers working on it to present the facts to the investors. Initial reactions may be coloured and driven by perceptions or misperceptions. But you must set the facts right. People will obviously question the deal, but ultimately, they will take a decision based on how straightforward and transparent you are in terms of presenting the facts.
