India's relative position at its strongest in many years: Raj Balakrishnan

The deal pipeline across products is robust for 2024. Banks are actively working on several IPOs, with plans to file them in the next three months, says Balakrishnan

India witnessed robust activity in the equity capital market (ECM) in 2023, and this momentum is expected to continue into the next year. This optimistic outlook is supported by superior domestic macroeconomics and the performance of companies, as highlighted by RAJ BALAKRISHNAN, co-head of India investment banking at Bank of America India (BofA India). In an interview with Samie Modak in Mumbai, Balakrishnan mentions several initial public offerings (IPOs) currently in progress, scheduled to hit the markets by the middle of next year. Edited excerpts:

How was 2023 for BofA India, and were large banks like yours at a disadvantage as small IPOs dominated this year?
 

2023 can be characterised as a year of two halves. The first half, until May, experienced a notable slowdown with only a small number of mergers and acquisitions (M&As) being concluded. However, since then, there has been a robust recovery.

BofA India led two large IPOs (Nexus Select Trust Real Estate Investment Trust, or Reit, and Tata Technologies), participated in several large qualified institutional placements (QIPs) such as Bajaj Finance, Brookfield Asset Management, Federal Bank, Aditya Birla Capital, engaged in numerous block trades (including Tencent in PolicyBazaar, abrdn in HDFC Life and HDFC Asset Management Company, or AMC, Timken in Timken India, Ant Group’s Alipay in Zomato), and facilitated several M&A trades (Hapag-Lloyd–JM Baxi Ports & Logistics, Brookfield Reit acquisition of Gurugram and Powai assets, Titan Company–CaratLane, Gentari–AM Green Ammonia Holdings, Siemens Energy’s sale of stake in Siemens, ICICI Securities delisting, and Network18 on the merger of TV18 and E18 with itself).

These activities propelled BofA India to the second position in fees paid from all India-related deals, according to Dealogic.

Despite the challenges in the first half, the bank has a strong pipeline across products and looks forward to a positive outlook in 2024.

What does the deal pipeline look like, and do you anticipate 2024 surpassing this year’s tally?
 

The deal pipeline across products is robust for 2024. Banks are actively working on several IPOs, with plans to file them in the next three months. These deals are expected to hit the market in the April–June quarter of 2024-25.

Additionally, there is a strong M&A pipeline, and there is optimism that a significant number of these deals will reach the finish line next year.

The momentum observed in strong QIPs and block trade activity in recent months is also expected to continue.

Deal-making typically experiences a slowdown around election time. Will this time be any different?
 

Despite historical trends of deal closures slowing immediately before elections, the current strong market momentum has led us to continue working on deals across various products.

While there have been instances of slowed activity in some years before elections, there have also been election cycles where deal-making remained robust.

We are prepared and will aim to launch deals in the right window, either before or shortly after the elections.

What are the key headwinds and tailwinds for India heading into the next year?
 

India is currently in a sweet spot with strong macroeconomic fundamentals compared to most other markets globally.

There is a sustained growth momentum, the emergence of new companies not only in information technology (IT) and IT services, where India has traditionally been strong, but also in export-led manufacturing. Additionally, proactive government policies contribute to this positive outlook.

All of these factors represent a strong tailwind for the country as a whole, marking the best relative position India has seen in several years.

Secondary market valuations are currently expensive. How will this impact ECM activity?
 

The valuations in the secondary markets mirror expectations concerning the Indian macroeconomy and the impressive performance of numerous domestic companies. It is hoped that this will translate into robust primary market activity as well.

We have observed a strong response across our recent transactions, and there is no indication of undue caution on the part of investors.

How is the positioning of foreign portfolio investors (FPI)? Is the significance of domestic funds increasing in terms of pricing deals?
 

The robust inflows into domestic funds have contributed to the resilience of Indian markets. In past cycles, there was a notion that “if the New York Stock Exchange sneezes, the Indian market catches a cold”. However, this is no longer the case, and Indian markets have demonstrated strength even during periods of negative FPI flows.

Which sectors or themes are anticipated to dominate in 2024, and do you foresee IPOs from marquee new-age companies?
 

We expect a diverse range of sectors to attract companies seeking to raise capital in 2024, with new-age companies and financials taking a prominent role.

Additionally, we anticipate strong private capital-raising activity in sectors like energy transition, and we expect the Reit market to remain robust.

We have observed numerous block deals involving new-age companies. What is driving these transactions?
 

Block deals contribute positively to the Indian market by allowing venture capital funds and early-stage investors to showcase their ability to achieve large mark-to-market gains in India without disrupting the markets. In my view, this would encourage additional investment in the Indian startup ecosystem.

The market has observed smooth execution of large private equity (PE) exits, exemplified by cases like Computer Age Management Services and Coforge. What does this indicate about the state of domestic markets?
 

The exits through block deals, including those of abrdn in HDFC Life and HDFC AMC, illustrate the depth of Indian capital markets. We believe this will bolster confidence in the Indian markets as a whole, fostering both PE buyouts and additional strategic investments.

Are there specific deal attributes that BofA likes to focus on?
 

We prefer working with market-leading companies that uphold high corporate governance standards across various sectors.