Deal activity will gather pace after Budget: Utpal Oza, Nomura India

Utpal Oza
Utpal Oza, head of investment banking, Nomura India, says concerns surrounding economic slowdown and the non-banking financial company (NBFC) liquidity notwithstanding, a revival in corporate fundraising cycle is around the corner. In an interview to Sundar Sethuraman, Oza says there could be an increase in deal activity after the Budget. Edited excerpts:

The first five months of 2019 have not been so great for fundraising through equity markets. What is your outlook for the rest of the year?

The first five months of 2019 was characterised by uncertainties such as the general elections and US-China trade tensions. As a result, issuers took the prudent approach of waiting through this period. We expect fundraising through equity capital markets to pick up. Indices are close to their all-time high levels, and a clear electoral mandate has increased investor confidence. Though there is some unease with the slowdown in consumption and financial liquidity, especially within NBFCs, we expect a positive momentum, especially after the Budget.

What does the overseas listing scene look like? Will more Indian companies raise money abroad?

In my view, only select new-age technology companies would tap international markets. They could go to the US markets in the coming 18-24 months. Barring these select opportunities, we expect Indian capital markets to be the preferred listing choice for a majority of Indian issuers.

More than 70 companies awaiting Securities and Exchange Board of India (Sebi) approvals for initial public offerings (IPOs) haven’t hit the market. Why? With the elections over, do you expect the IPO cycle to pick up?

There is healthy investor appetite for companies with strong fundamentals, unique business model, and a robust corporate governance framework. These first-of-its-kind stories and strong market positioning will help some of these companies to command premium valuations. The market sentiment is improving after the election results. We have seen robust foreign inflows of $11 billion so far this year.  Moreover, there has been some uptrend in the Indian mid-cap and small-cap valuations, which also bode well for IPOs in the pipeline, as a majority of these issuances are mid-cap companies.

How will real estate investment trusts (REITs) impact the realty sector? Do you expect more REITs to hit the market after the success of Embassy REIT?

The launch of India’s first REIT is a game-changing development for the domestic real estate sector. It provides developers with a medium to access capital against their assets, which they can then further deploy into new assets. This access to liquidity and value unlocking of assets has the potential to resolve some key challenges that this sector faces.  We expect more REITs from high-quality promoters to hit the market in the coming months.

Many companies have come with buyback offers since 2016. Will this trend continue? What are your thoughts on Sebi’s discussion papers on rights issues and buybacks?

The introduction of the stock exchange settlement mechanism by Sebi for tender buybacks in 2015 enabled buybacks to be considered as market transactions. The tax advantage of buybacks has been the primary driver for the significant increase in buyback offers in the past few years. More recently, the corr­e­ction in the valuation of most firms since last September pr­e­sented a prime opportunity for firms that believed their stock was undervalued. They had access to capital (normally in the form of cash reserves) to launch buyback offers in pursuit of shareholder wealth creation.  Sebi’s recent discussion papers on buybacks and rights issues are focused on streamlining the process and easing the rules for companies. These are positive developments that will provide companies with an efficient mechanism to raise funds.

What do you think about the recent regulatory changes which make it easy to tweak IPO size?

This is an extremely positive move and a welcome change. This will allow issuers to be nimbler and align their capital-raising plans with the market conditions, especially in a volatile environment.