M&As to pick up substantially as economy grows, says Moelis India CEO

India probably is the only market in the world where despite valuations being sticky and high, valuations haven't corrected as much, said Girotra

MANISHA GIROTRA, chief executive officer (CEO) of the merger and acquisition (M&A) advisory firm Moelis India, has been closely following the Indian investment banking space for over 30 years. Previously, she served as CEO and country head of UBS India and as head of North India for Barclays Bank. She began her investment banking career at ANZ Grindlays in London. In an interview with Dev Chatterjee, Girotra discusses how the Indian economy is experiencing an unprecedented boom, attracting foreign investors in droves. Edited excerpts:

The M&As in the first half of the current calendar year have significantly slowed down compared to the same period in 2022. Do you expect M&As to pick up in the remainder of the year?
 

The data reveals a huge difference between the first half of 2023 and 2022, primarily due to two elephant trades: HDFC Bank and Adani’s acquisition of Holcim India assets in 2022. While things have slowed down in India this year, it hasn’t been as drastic as in the rest of the world.

In the US, for example, capital raising has fallen to just $75 billion year-to-date, compared to the annual average of about $350 billion.

We still haven’t seen that kind of fall in India. In India, excluding the two large trades, we might see a 15-20 per cent decrease in 2023, in line with the global trend of investors holding on to capital.

Private equities today are currently sitting on $3-4 trillion in capital, but they’re cautious, waiting for bid offer spreads to narrow.

India stands out as a country where capital deployment is happening, evident in deals like HDFC Credila, Indira IVF, and Manipal. We’ve also witnessed significant investments in Reliance Retail by Qatar Investment Authority and KKR.

India probably is the only market in the world where valuations haven’t corrected as much despite being sticky and high.

India likely remains one of the world’s most expensive markets, both in the public and private sectors. However, even with high valuations, capital continues to flow into India. While investments are slower, they’re still performing better than the global average.

Indian companies have been slowing down their overseas investments compared to a few years ago when Tata, Birla, and Bharti Airtel were acquiring companies abroad. Do you expect this trend to continue?
 

Indian companies are not making as many overseas acquisitions as they did in the past. In the past, India Inc desired to dominate the global market. However, given India’s rapid economic growth, companies are now focusing more on local investments. Even global companies are making substantial investments within India. While we may witness slower growth in outbound investments, domestic consolidation and inbound investments are likely to continue.

After the Hindenburg Research report in January this year, which affected sentiment about Indian companies, do you think investors are flocking to Indian markets?
 

There’s a lot of positive momentum surrounding India. Economic growth is evident, and regulatory clarity has improved. Tough regulatory decisions such as goods and services tax, Real Estate Regulatory Authority, and demonetisation are now falling into place.

We’ve witnessed private equity and sovereign funds investing this year, realising substantial returns through block deals.

Several global strategic investors are building their businesses from the ground up in India, with many Japanese and South Korean companies organically expanding their operations here, which is unique.

In the past, India was primarily seen as the world’s office, focused on services. However, now, in addition to being the world’s office, India aims to become the world’s factory.

With a strong domestic market of 400 million middle-class consumers aspiring to purchase the best in education, health care, holidays, and more, there’s a growing demand for products from companies in the consumer space.

Foreign investors are attracted to India because it’s the only market in the world offering this level of growth.