Lower bonuses for domestic insurance bankers as firms' revenues take a hit

Revenues of investment banking firms have been hit by a drop in activity

Domestic investment bankers may take home 30-50 per cent of annual pay as average bonuses, far lower than the 100-200 per cent they pocketed in the last financial year. 

FY19 saw a lull in equity capital market (ECM) activity, particularly in the latter half of the year, impacting revenues. The amount mopped up by way of initial public offerings (IPOs) and qualified institutional placements (QIPs) dipped about 80 per cent over the previous fiscal, while the quantum of buyback offers declined 17 per cent. 

“The revenues on the ECM side have fallen 50-60 per cent over the previous year and only a few select bankers will pocket sky-high bonuses this year,” said a senior investment banker from a top domestic investment bank, on condition of anonymity. 

Bonuses are typically commensurate with deal activity in any given year. Bankers, on average, pocket 2-3 per cent as fees for managing IPOs and 1.5-2 per cent for handling QIPs. Buybacks fetch Rs 1-2 crore per deal. 

“There has been a significant drop in issuances over the previous fiscal, which will impact bonus and other variable payouts,” observed Pranav Haldea, managing director, Prime Database, a primary market tracker. 

In FY18, the uptick in the secondary market, significant domestic flows and the rush for exits by private equity players had helped the cause of IPOs. A flurry of QIPs hit the market driven by the need to retire debt.

The average deal size in FY19 was Rs 1,048 crore, with HDFC Asset Management’s IPO with an issue size of Rs 2,800 crore being the largest. Only two out of the 14 companies that hit the market had a prior investment from private equity or venture capital player. Offers for sale by such investors stood at Rs 1,655 crore and accounted for 11 per cent of the total IPO amount. Offers for sale by promoters at Rs 9,458 crore accounted for a further 64 per cent of the IPO amount. In FY18, more than four-fifths of the amount garnered through IPOs were share sales by existing investors, including promoters, PE and VC funds.

The largest QIP was that of DLF, which raised Rs 3,173 crore, accounting for 30 per cent of the total QIP amount. While banks had led most of the QIP activity in FY19, real estate contributed 42 per cent to the QIP mop-up in FY19.

The IPO pipeline for FY20 remains strong, with 64 companies holding regulatory approval to raise over Rs 63,000 crore. 

Domestic bankers have been cornering a larger share of the equity fund-raising pie even as foreign players have become selective, experts said. Until a few years ago, foreign investment banks were considered indispensable in handling large issues of over Rs 10 billion, owing to their better reach and marketing prowess. That is no longer the case.

Indian companies taking the IPO route are now much more confident about the execution skills of domestic investment banks and their capability to attract both domestic and overseas funds.

Domestic investment banks have ramped up operations significantly, even as several foreign investment banks, especially the European ones, have scaled down.