High anticipation of capital market reforms in the full budget: Lunawat

Some new-age technology companies might be in trouble as the PE tap has dried up. However, one cannot generalise the same for the entire sector, Lunavat said in this interview

The markets are trading at record highs. MAHAVIR LUNAWAT, managing director at Pantomath Capital Advisors, tells Puneet Wadhwa in an interview that he expects the new-age technology sector as one of the key sectoral opportunities over the next five years. Edited excerpts:

A recent report by Pantomath expects the mop up via the initial public offer (IPO) route in fiscal 2024-25 (FY25) at Rs 1 trillion. Aren’t you being over ambitious?

The optimism surrounding Rs 1 trillion mop-up via IPOs in FY25 is underpinned by a combination of robust market liquidity and a strong investor interest in fresh market entrants. The current pipeline strengthens the outlook, with 56 companies aiming to raise Rs 70,000 crore, having already approached the Securities and Exchange Board of India (Sebi). Of these, 19 companies have been greenlit by the regulator to secure Rs 25,000 crore. Another 37 companies, targeting Rs 45,000 crore, are in the approval queue.

While the projection is based on current market dynamics and the regulatory environment, which appears favorable, it's important to consider potential risks such as market volatility, shifts in global economic conditions, and regulatory adjustments that could impact investor sentiment or liquidity levels. Despite these considerations, the current momentum and regulatory approvals in progress provide a solid foundation for this optimistic outlook, suggesting that the target is achievable with continued market support and investor interest.

How do you see the overall deal making scenario play out in the current fiscal?

With up to 12 companies eyeing IPOs in 2024, this movement suggests a robust interest in new, technology-driven enterprises. Emerging sectors that could be in focus are battery energy storage solutions, green hydrogen, renewable energy, biotechnology, AVGC (animation, visual effects, gaming, comics), and semiconductor chip manufacturing, assembly, and design.

Some new-age technology companies (NATCs) are fighting for survival. How do you see the landscape shaping up for this segment?

Most of the new-age technologies were funded by private equity (PE) funds and sole focus was on growth and not profitability. However, post the recent underperformance by these companies, the management has started focusing on profitability which can be visible in the recent quarterly numbers of these NATCs. So, the focus has changed from aggressive growth to profitable growth.

That said, some companies might be in trouble as the PE tap has dried up. However, one cannot generalise the same for the entire sector. ‘Survival of the fittest’ will prevail and structurally stronger companies will thrive. We expect the new-age technology sector as one of the key sectoral opportunities over the next five years. However, one has to be cautious about the operating model and capital allocation strategies of such companies.

Do you expect any reforms for the capital markets once the new government announces the full budget later this year?

Anticipation is high for potential capital market reforms in the upcoming (full) budget announcements. Market participants are particularly hopeful for tax-related reforms: a decrease in both individual and corporate tax rates, and an increase in the tax-free threshold for individuals, potentially beyond the current Rs 7 lakh. Such measures could lead to more disposable income, fostering increased savings, investment, and consumption.

The number of PMS and investment banking offerings have grown manifold in the last few years. How does Pantomath plan to face the challenges / headwinds?

Yes, we expect major consolidation in investment banking and fund management space over the next three years. Pantomath has undertaken both organic as well as inorganic growth measures. We have made strategic acquisitions in AI based fintech platforms to be ahead of the market. Besides, synergies between the investment banking team at Pantomath and distribution and institutional verticals at Asit C Mehta Financial Services are working fine as we gear up for the new fiscal.