Q&A: Indraneil Borkakoty, Nomura India

'Low fee is not good for bankers'

The booming primary market does not worry Indraneil Borkakoty, Nomura India’s new executive director and head of equity capital market (ECM, or the investment banking division). Borkakoty, who was heading the ECM vertical at Kotak Mahindra Capital till a month back, says investment in initial public offers (IPOs) will create a wider market for investors and control overheating of the secondary market. In a chat with Ashish Rukhaiyar, he talks on various issues like zero fee, foreign inflows and inflation. Edited excerpts:

There’s a perception that Nomura is not aggressive in the IPO arena. In 2009 and 2010 (till date), you managed just two issues.
We got our merchant banking licence only in December 2008. We have already done nine deals, including qualified institutional placements, American depository receipts and foreign currency convertible bonds. But yes, two IPOs. We have got quite a few mandates now in the capital market segment and are building our ECM franchise across the region.

In research, we have become number two in Asia ex-Japan. With many people coming on board, we are seeing a lot of traction now. We have firm mandates for four-five IPOs that should happen in the current financial year.

Has Nomura been pitching for divestment issues?
Yes, we recently started pitching for these transactions. From both domestic as well as global perspectives, these are important dealings. Public sector undertakings are high-quality companies and transactions in these tend to be large. In addition to attracting funds from the existing players in India, these offerings tend to attract capital from investors that have not yet started investing in the country.

But what will you say about the trend of quoting near-zero fee for bagging government mandates?
In government transactions, it is not just the fee that one considers. Obviously, low fee is not a good thing. But, there are other benefits like visibility on the global platform and league table credits. As mentioned earlier, you also attract a lot of first-time investors for these primary offerings. The sheer size of the deal is also important for the banking business per se, in terms of investor relationships.

India accounted for 16 per cent of the total ECM volume of Asia ex-Japan during the first half of this year. Going forward, do you expect any rise in India’s share?
It will definiitely go up, but it is difficult to put a time-frame. A large part of fund-raising in the region will essentially be driven by China and India. To that extent, India’s share should expand. In terms of the sheer size of the economy, the capital requirement will be much higher than many other countries in the region.

In the secondary market, foreign and domestic investors appear to have taken a contrarian bet on the markets. What explains this trend?
It is based on each one’s perception of valuations. It is always healthy to have certain set of buyers and sellers in the market.

Globally, there are a very few markets witnessing the kind of growth like India. So, from an FII (foreign institutional investor) perspective, it makes sense to be invested in growth markets than in developed markets, which are not providing returns. Meanwhile, domestic institutions are taking this opportunity to book profit.

Do you expect any trend reversal in terms of FII flows?
The flows are only improving. A lot of general funds, which invest a large part of their capital in developed markets, will probably churn their portfolios to increase the weight of emerging markets, thereby directing further flows into India.

The government is talking about spending some trillion dollars on infrastructure in the next four-five years. It will include foreign participation and open another investment avenue. So, whatever gets churned does not necessarily have to go to the secondary market, which may create a bubble.

What are the key concerns for the market?
The most important concern is inflation, since it has a direct bearing on liquidity. Any increase in interest rates will reduce liquidity. There is a soft interest rate regime globally, as governments are focusing on growth. But, it will be important to see how governments in the US and Europe view interest rates.