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00:00Hello and welcome to ETNOW. We are at the JP Morgan India Conference and with me is Nitin Maheshwari and Ravi Shankar, both Managing Director and Co-Head, India Investment Banking.
00:21Gentlemen, thank you very much for joining us on ETNOW. Nitin, to begin with, how was the year? In the last one year, we've seen a wide range of issues coming in, IPOs, private equity exits, you know, so how is it looking and what's the synopsis for the last financial year?
00:39So, first of all, thank you for joining us. It's a very special day. It's our 10th investor conference. Happens to be that we're completing 80 years, so we're celebrating that. And today's a very special day, thanks to GST and the Navaratri bringing, so thank you for being with us.
00:53If we reflect on the last year, there's been activity across both public and private markets. Public markets has been diversified across sectors. We've seen volume, which has crossed what we did last year.
01:05There's been large IPOs, billion-dollar-plus IPOs. There have been sell-downs by companies who are looking to enhance their free float.
01:13And on the M&A side, we've seen activity across both Indian clients going out, international companies looking to revisit their India overall portfolio, taking it public, etc.
01:25And then private equity remaining quite active. So, we've seen activity across the board, and we continue to see a lot more as we reflect on the next 6 to 18 months.
01:33Ravi, sector-specific? Has there been a lot of action in a particular sector?
01:39Yeah, sure. So, look, I think you can look at private equity on one side and corporate on another. On private equity, we are clearly seeing in tech service and infrastructure, they continue to be highly active.
01:48They're putting almost $40 billion capital a year, and a lot of that is going to these two sectors. On the corporate side, we are seeing inbound, FIG, very active.
01:57Obviously, you saw SMBC investing in 1.6 billion in US Bank, but the entire Japanese and Middle Eastern corridor is quite active in that particular sector.
02:04On the outbound, people are going for market access and technology, and that's where you're seeing DI and healthcare, kind of key areas where we are seeing a lot of action.
02:15You know, we've seen in the last 6 months a lot of uncertainty coming because of the Trump tariffs, and that's also prompting many of the Indian companies to look outbound to being nearshore US or part of that US-Mexico-Canada agreement, right?
02:30So, are you seeing a lot of activity in that region, Nathan?
02:34I think just the tone has moved from, you know, waiting for certainty to navigating the uncertainty, right?
02:40That's what we are actively seeing with our clients.
02:43So, each one has a different decision to take, you know, whether it's going public or going nearshore or making an acquisition, where we have seen the most amount of dialogue and activities,
02:52where we had a client who already knew a certain business that they liked, they understood that segment, and the market, that's where they're taking the actual step now.
03:02As you know, Indian clients are in a good place, balance sheets are super strong, their valuations and their investors support growth, right?
03:09And hence, inorganic growth is very much a type, you know, part of the agenda.
03:13Now, within that, what asset they will buy, it may have different reasons, as Ravi highlighted.
03:17And perhaps, Ravi, you could add on those themes, which is driving some of the M&A.
03:22Yeah, so, look, I think, as I said, in DI, it's very much about getting access to technology.
03:26If you look at some of the opportunities that are out there in Europe, if you look at Tata Motors buying Iveco or Tega buying Moly Corp,
03:32those are basically the same themes that they're going after.
03:35And in a way, they're also, you know, globalizing their business and taking out some of the geopolitical risk in this matter.
03:41And do you think the Indian companies have enough balance sheet to go out and buy that?
03:47Because in the last few years, we've seen the balance sheet getting repaired, leverage coming down, more cash in the books.
03:53Yes.
03:54So they have that confidence to go and, you know, bid for bigger companies like Tega.
04:01Yes, absolutely.
04:01That's actually a perfect example of how a company which is like a billion and a half, two billion market cap going and buying a billion and a half company.
04:08So clearly, there is a confidence and that's coming out from two things.
04:12One, the fact that they have a very liquid currency that they can use in terms of equity, stock price and the equity various trades.
04:20And then you can raise capital like the Tega which went and raised two thousand crores.
04:24And also the, you know, very liquid balance sheet.
04:27And also, I think just the confidence that the private firms have in aligning with the Indian corporate and partnering to build more value.
04:37And I think the corporate governance level have been quite high in India.
04:40And that's the reason why you see, you know, equity, debt and partnership with private equity coming together to allow them to go and do transformational acquisition.
04:49And there's one thing to be said about the balance sheet, right?
04:51So one is Indian clients have a very strong balance sheet.
04:55The banking system globally and in India is at a good place, right?
04:59Where they're keen to lend if there are opportunities that they can finance, right?
05:03And then private equity has a lot of capital to deploy.
05:06So their idea of partnering with Indian companies to do more is a very active one.
05:11True.
05:12Private equity also, you know, going in a big way, collaborating or coming into a consortium and bidding for big projects or big companies now.
05:20That's something which we didn't see maybe a few years back.
05:23Now it's coming more along all big acquisitions.
05:26You have a private equity, either a structural debt or an equity coming into that.
05:31Is that the trend to go by?
05:33I think it's the trend there is deals are becoming larger and more complex.
05:38And that's where two sponsors partnering with each other or a sponsor partnering with an LP because there's a larger check size which can take more equity is what we are seeing.
05:49But the trend, underlying trend behind this is that there are larger deals that sponsors are comfortable doing.
05:54There are more complex deals where it's an outbound and, you know, there's a certain need in the capital structure of going beyond debt and equity to a preferred security in the middle.
06:03So that's where the complexity of deals is creating opportunities for consortiums to come together.
06:09But I won't say that consortium itself is a trend, right?
06:13We are seeing deals where single sponsors writing the, you know, checks which are larger than we had ever seen.
06:18So that will continue.
06:19But some of these consortiums come together because of a specific need in that situation.
06:25How's the IPO market looking?
06:27Because it's also something expanding in a big way.
06:30We've seen foreign flows coming to IPOs.
06:34And new capital.
06:37But, you know, while domestic market may be a little muted in terms of FI flows, you know, the FIs are lapping up all new papers.
06:46So, look, I think if you look at the IPO market last year, we had $20 billion of IPO, $70 billion of equity deals, which were second largest in the world after U.S., which is quite a thing to say for a market which is like fourth or fifth largest by GDP.
06:59And I think what's driving that is two things.
07:02One, on the supply of paper side, just the double-digit GDP nominal growth means that the companies which are underlying, which are coming for IPO, they are growing 15%, 20%.
07:12So that's a very healthy cohort of companies coming for IPO.
07:15And on the demand side, the paper is getting bought by all the mutual funds and retail, which is seeing a secular shift in the household savings, which was earlier, say, 4% of that coming to equity.
07:29Now it's 8%, but still a third of where U.S. is today, right?
07:33So I think that secular shift will continue to provide a glide path for all these IPO paper to be picked up, while, you know, the growth will make sure that the quality of these paper is quite unique.
07:46Do you think the domestic money is now not dependent on foreign money for any IPO funding?
07:51Yeah, look, I think, first of all, FIIs are indeed playing into deals.
07:57So right now, even today, 40% to 50% of…
07:59They're not price setters now, actually.
08:01It's the domestic funds who are the price setters.
08:03So I think it's a balance.
08:05It's a better balance than earlier.
08:0640% to 50% of demand comes from FII.
08:09And from that perspective, they'll continue to play the role, an important role.
08:13What they're also doing in a number of cases is actually taking money from secondary market and investing in deals because, obviously, deals, you get a certain pricing advantage.
08:22But I think it will continue to a balance between domestic and FIIs going forward.
08:28The FII regulations has also evolved, right?
08:30In the last one year, we've seen a lot of evolution coming in for FIIP regulations, basically.
08:36How do you see that helping diversifying flows into India or investors coming into the IPO and, you know, into the deals?
08:46See, overall, on the regulatory front, we've continued to make it easier for foreign investors to deploy capital in India.
08:54And, you know, if you're an investor, you're thinking about two things.
08:58Where do I deploy and how will I exit?
08:59I think we've consistently proven that you're able to exit investments and take your money out when you need to.
09:05And that is, you know, a sign of a mature market, right?
09:08So we're continuing to evolve in that right direction.
09:11So we're seeing a lot of, you know, focus on India from foreign investors, both the private equity bucket, the infrastructure bucket, and also the institutional money, right?
09:21So we are not seeing any dearth of dialogue.
09:23We're having one of the largest turnouts in the conference this, you know, today and tomorrow, right, in terms of number of investors, the foreign, you know, institutions who have showed up.
09:33So there's a lot of interest around India.
09:34There will always be decisions they will make on different markets, different economies, and different companies.
09:40But there is an active dialogue, right?
09:42And just the number of IPOs, which are a billion-dollar-plus, which are forthcoming in the next six to 12 months, it's substantial.
09:49So we are going to see that the $5 trillion market cap will expand into a much larger number, one, just the compounding, and second, more importantly, many large companies, which will now be public and hence contribute to the overall market cap of the country.
10:03So do you think the new incremental market cap addition to the Indian markets would come in from the newer issues or from secondary market valuation?
10:13I think it will be a mix of the two, right?
10:14So just the new paper coming in, if you think about IPO plus rights issue plus follow-on last year, that will have $40 billion.
10:25This year will be somewhat in the similar range.
10:28So I think that is not coming at a cost of money coming to secondary market because there's a consistent shift, as I said, of the equities, which is going from household saving from FT and real estate to market.
10:40So I think it's going to be a combination of the two rather than one versus another.
10:45You know, just to get your thoughts on confidential filing, because we have new tech companies, emerging companies going for that route.
10:52How is it looking?
10:53You two have been, you know, spearheading some of the tech big IPOs there.
10:58So how is it looking actually?
10:59Yes.
11:00So look, I think, first of all, our regulator has been quite forward-looking in terms of continuing to change and update their regulation, right?
11:09So if you go to developed market, especially U.S., confidential filing is the norm.
11:13In India, they introduced it a few years ago, and now it has been lapped up by a number of corporates simply because it allows them to do the right thing,
11:20which is to be in front of investor and talking to them when they're ready with all the regulatory, you know, process that they need to go through.
11:29So it's almost like a process thing where a number of issuers are taking advantage of that.
11:34And we think there are more and more people who are going to do that going forward compared to what they did last year.
11:41Are you looking at companies from multiple sectors opting for confidential filing?
11:47Because we saw a financial services company also looking at confidential filing.
11:51But normally we would have seen the emerging new tech looking at that, right?
11:56We're seeing it across sectors.
11:58We've seen it in retail.
11:59We've seen it in tech.
12:00We've seen it in financial services, as you said.
12:02So it's not a sector-specific solution.
12:05It's going to become the norm in our view in many cases where it just allows you to have a private filing which is not public till we have decided what's the right timing.
12:15So, like the U.S., and, you know, confidential filing is just one example.
12:20But the changes that we've brought over the last five years, this is all moving towards, you know, calling ourselves a developed economy and a mature market, both from regulatory and investment perspective.
12:30How do you see the new regulation on IPO, multiple-tier, eases, manages liquidity coming into the market, I would say.
12:39That's a better way to put it.
12:41But at the same time, allowing company to come and, you know, list on the stock exchanges?
12:45No, absolutely.
12:46Look, I think, again, that's another example of a regulator being very proactive about solving issues, right?
12:53Because if you think about our IPO, just the structure it is, where you have H&I, retail, and stuff like that, you need to make sure that you are putting stock in hands of people who understand it, and you do it in a gradual fashion.
13:06Yeah.
13:07And while making sure that the interest of marginal investor, which is what Sevi is very focused on, is kind of taken care of.
13:14So, I think it's a step in the right direction.
13:16And they're making sure that there's enough float for people to trade in and out.
13:20At the same time, it doesn't become, like, too much of unwieldy process for large companies.
13:26And that's, again, a good problem to have to start with, because, till now, we had companies going for IPO as soon as they become a billion, two billion dollar in value.
13:34Now, there are companies which are worth $50 billion plus.
13:38Oh, $100 billion.
13:38And they're considering IPO.
13:40So, that just shows the strength of the capital market, that it can actually fund, the private capital market can fund companies, till they've become larger and larger, which is a norm in the U.S., like OpenAI or Anthropic, et cetera.
13:53$600 billion or $300 billion or they're still not public, right?
13:56So, I think private capital market has strengthened, and I think this, again, helps companies to solve for their IPO issues properly.
14:02Does it make life for you a little tougher, because anchor book, you have now pension and insurance companies having a little more quota coming in there, and then you have to satisfy your foreign investors, you have to make do it less?
14:16These are great problems to have, right, if you have more demand for companies that we're going to take public.
14:23So, no, it doesn't make our life difficult, but honestly, I take it as a problem statement.
14:28Yeah, and look, I think at JPMorgan, we serve all car investors, right?
14:32Where there's a domestic mutual fund, FII, pension funds, life insurance companies.
14:38So, I think all of them are equally esteemed client of our firm.
14:41So, I don't think it's a consideration at ARA.
14:45You know, maybe five or ten years ago, we would have said that, okay, Indian markets can't handle a 10,000 crore IPO.
14:51I remember when the ONGC OFS happened, right, 10,000 crores, and so much of issue that came up because allocation issues, everything came in.
15:01From there to now, when we are handling 28,000, 29,000 crore IPOs, do you think that Indian markets now mature enough to go above that to 30,000, 40,000 crore IPOs?
15:11Yeah, I think it's a matter of time because, you know, when we were doing Hyundai, which is $3.3 billion, about 27,000 crore,
15:18even then people had a consideration whether this is something that market can take, and market took it pretty well.
15:24So, I think it's a natural evolution of the market, which is growing 15% annually.
15:28So, if you think about in three years, it will become double, right?
15:30So, what if we could do $3 billion in 2024?
15:32Easily, we can do $6 billion in 2027.
15:35So, I think it's a natural evolution of a growing market.
15:37What about the pricing of IPOs?
15:39Do you think that markets is now, it's come to an equilibrium where market is able to, you know, push down the price,
15:47even if the promoters want to have a higher valuation?
15:50I think it's a...
15:51Because every time we ask a promoter, they put it on the bankers, that the pricing has been said by the bankers.
15:58So, what is your view on it?
16:00So, I can start on how you should add.
16:02See, fundamentally, it's demand and supply, right?
16:04So, for high-quality companies, there is a long list of investors who want to be part of that journey,
16:10and they're actively participating in those IPOs, which allows us to get the pricing in the right direction, right?
16:17And I won't answer your question in the manner that you want, Sajid.
16:21But importantly, we're seeing that, you know, let's call it a very balanced discussion happening on how IPOs are getting priced.
16:29And more importantly, we want to make sure IPOs also trade well after the listing, right?
16:34So, that's the ongoing discussion and process that evolves.
16:37Is it like putting the buck on the table for when you're coming for IPO, right?
16:41Yeah, no, look, I think the way the market works, there's always pendulum sunk sometime this way and sometime that way,
16:49and then the balance comes.
16:50So, I think it's a natural, again, evolution where some deals don't do well,
16:53and then, you know, for the next deal, the investor would like a more insurance,
16:56and hence, then it pops a lot more, and then it pops a lot more, and then issuer comes later.
17:02So, I think it's a natural kind of a yin and yang which keeps happening.
17:07I think more importantly, all of our clients understand that IPO is just the start of that journey, right?
17:12So, they want to be long-term partners, have long-term investors.
17:15They have other businesses in the group who will go public.
17:18So, we have that very healthy dialogue as IPO is getting priced.
17:22Nitin and Ravi, it was a pleasure talking to you today.
17:24Thank you very much for joining us on ETNOW.
17:27Thanks for your time.
17:27Thanks for your time.
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