The environment for equity public issues remains more difficult than last year and valuation expectations from companies have moderated, says Purvesh Shah, head of global capital markets for India at UBS Securities. Excerpts from an interview with Mehul Shah:
We have seen recent equity public issues struggling to get fully subscribed. Is it difficult to convince investors?
For the equity market, things have not been as easy as we thought at the start of the year. It is in the second half of this year when I would expect a pick-up in activity in terms of some of the transactions going through. We have seen a few launches in recent weeks. It has been a mixed bag in terms of response. But, it clearly highlights that investors are open to looking at some transactions keeping in mind the quality of the offering. Having said that, it’s a far different environment from what we saw last year.
In such an environment, is there any change in strategy of companies which want to raise money through equity issuances?
I think the biggest change has been valuation expectations in terms of what investors feel comfortable paying. Corporates recognise this and hence, the moderation of their expectations. Some corporates are also exploring hybrid instruments like convertible bonds or even debt issuances as the equity markets have been less accommodating. It’s a function of how far one is in the capex cycle. There is clearly a need for capital. Most corporates have a balance sheet strategy, and they want to be aligned to it.
Are there any particular sectors which investors prefer at present?
Appetite is good for certain sectors like financials, banks as well as non-banking financial service (NBFC) companies, needless to say, at sensible valuations. Muthoot Finance is a testimony (to that), in my opinion. Financials are clearly in the sweet spot. In the near term, the level of activity may slow a bit in the sector due to macro worries, but investors remain very interested in this sector. There is also some uncertainty surrounding the regulatory framework for NBFCs. Investors are keeping a close watch on this.
After some of the recent scams, are investors focusing more on corporate governance than earlier?
Investors are always focused on and concerned about corporate governance standards across emerging markets. It is not about India in particular. It is one of the key investment criteria, especially for investors based in the Europe and the US. The reason I am mentioning these geographies is they are further away from the ground. People based in Asia, who certainly care about corporate governance, are closer to the markets and hence the information flow to them is probably faster and hence their ability to react is also faster.
