Everyone is waiting for a more stable market: Shailendra Ghaste

MD, investment banking, IDFC Capital

Though the market has run up in recent weeks, this might not necessarily revive sentiment towards the primary market. The robust foreign inflows don't provide much certainty for launching deals and one has to wait for a secular trend, says Shailendra Ghaste, managing director-investment banking, IDFC Capital, in an interview with Samie Modak. Edited excerpts:

Despite robust portfolio flows and a sharp uptick in the secondary market, we haven’t seen too many initial public offerings (IPOs).
The real challenge in doing an IPO is the substantial lag between getting regulatory clearances and launching an issue. One doesn’t know what the market will be at the time of launching a deal. The current inflows don’t necessarily provide any certainty or visibility. Companies don’t want to live in such an uncertain environment and bankers would also rather wait for the markets to be more stable.

In the past couple of months, the market has been moving in a certain way and it’s a good thing for us. But that doesn’t necessarily mean people are dying to put their money in IPOs. We are still some time away from a situation when you can launch Rs 1,000-1,500 crore deals, though we have had our share of Rs 200-crore-kind of IPOs. The current appetite seems to be for deals of such sizes, than the big-ticket IPOs.

The market has rallied since September and investor sentiment has improved. Does this give you confidence to test the waters?
Maybe people would like to wait for a few more months for a secular positive movement than what we have seen in the recent past. The tone is definitely more positive than what it was a month before. I think there will be some level of activity picking up again on qualified institutional placements (QIPs) or the follow-on offer side, but not so much in IPOs. For deals like QIPs, one can sense the investor appetite and execute quickly.

Sebi (the equity markets regulator) has recently introduced several reforms in the primary market. What impact will such changes have?
The general tone is that Sebi has taken good pro-active steps and is moving in the right direction. The unfortunate part is that there have been no deals to test some of these things. Sebi has done a right thing by implementing these measures when the market was going through a lull period. I think the timeline in launching an IPO has to be crunched; only then can one benefit from such a run-up in the markets.

Sebi has said that next year’s public shareholding deadline won't be relaxed. Still, we see very few companies coming forward to pare their promoter holdings.
We are still a few months away from that deadline. So, one would like to believe things would be better, going ahead, and issuers want to do deals then. Everyone is aware of the universe of companies which is going to get affected by the guideline. So, we and all others are chasing and talking to those companies. It depends finally on the valuations at which the issuers are comfortable. There are enough avenues to achieve 75 per cent public shareholding but everyone is just waiting for a more stable market environment. About four weeks of upsurge is not necessarily stable movement in terms of launching deals.

Do you think the government will be able to achieve the disinvestment target this year?
It is linked to the market momentum. If it continues the way it is, then we don't see any reason why the target shouldn't be met. Unless the trend reverses or the liquidity dries up substantially, there is no reason to worry.

How are investment banks coping with shrinking revenues, amid cut-throat competition?
Without a doubt, we have more numbers of bankers than the potential fee pool. So, obviously, when the going is good, there are many deals and there is enough for everyone to share and survive. The downturn, as we just went through, shows the dark side of the business. Revenue potential shrinks but cost structures remain at the same level. Then people have to come up with innovative ways for generating revenues.

That's when a firm like ours has an advantage. As a group, we can have many things to offer clients. If there is a corporate client, we can have something from the lending side. If a client has surplus cash, we have a mutual fund business. We also have a debt syndication business and other products like private equity. In a market like this, if you approach a company saying you want to make a deal, then you might not even get a meeting. But if its about finding out what's going on, in that conversation you might find some opportunity.