MUMBAI :Corporate India has often been praised by investors for maintaining a stronger liquidity position and being debt-free, Subhrajit Roy, managing director and head of global capital markets at Bank of America, said in an interview. Given the deleveraging on corporate balance sheets and the restart of the investment cycle, he expects capital market activity to accelerate in 2024. Edited excerpts:
Corporate India has often been praised by investors for maintaining a stronger liquidity position and being debt-free, Subhrajit Roy, managing director and head of global capital markets at Bank of America, said in an interview. Given the reduction in debt on corporate balance sheets and the restart of the investment cycle, he expects capital market activities to accelerate in 2024. Edited excerpts:
2023 was a pretty good year for the capital markets. How do you see it?
The year 2023 was interesting and the activity occurred in phases. The first four months were pretty quiet. In May we see broader risk appetite, with block deals leading the way. To be fair, blocks have proven resilient in recent years, regardless of market conditions. Each quarter it averaged $2.5 billion to $3 billion. This year was unprecedented. From April to June, perhaps $5 billion worth of deals were completed. Of course, this is because the demand side has picked up and supply has been somewhat stable. It was never at zero, unlike, for example, initial public offerings (IPOs) and subsequent public offerings, which have recently experienced such periods of inactivity.
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2023 was a pretty good year for the capital markets. How do you see it?
The year 2023 was interesting and the activity occurred in phases. The first four months were pretty quiet. In May we see broader risk appetite, with block deals leading the way. To be fair, blocks have proven resilient in recent years, regardless of market conditions. Each quarter it averaged $2.5 billion to $3 billion. This year was unprecedented. From April to June, perhaps $5 billion worth of deals were struck. Of course, this is because the demand side has picked up and supply has been somewhat stable. It was never at zero, unlike, for example, initial public offerings (IPOs) and subsequent public offerings, which have recently experienced such periods of inactivity.
IPOs have seen a surge recently, with Tata Technology's listing seeing unprecedented demand. Will it stay that way until 2024?
Yes, IPOs were well received and domestic demand was strong. But they are now also well balanced by FII demand. Notwithstanding the overall FII development where we have seen activity has been choppy. It is a very balanced demand scenario. And usually the results are also a win-win situation for both buyers and sellers, and this is how deals can be conducted. In general, Indian corporate sponsors have also been very attentive to the aftermarket. Therefore, it is an important part of the decision-making process on how the stock will be traded in the aftermarket and how the IPO price will be set. It feels like we are at the beginning of a very healthy IPO cycle. Blocking and tracking will continue. Although the national elections will take some time to wait and watch, if the elections go without surprises, there could be a significant increase in follow-up activity.
Many global brokers upgraded Indian stocks to Outperform. What are your top tips in this scenario? How does India fit into your perspective, what is your stance and why?
It is well known that India is one of the top performers among emerging markets (EM). Now the first, second or third could change further depending on what other countries are in the mix. But if we look at the reallocation of resources, the reallocation of resources, the emerging markets and the money market excluding China, everything seems to be in India's favor from their point of view.
What do you think about India becoming part of the GBI-EM, the JP Morgan index, from June? Is there a downside to this?
It's too early to say that. But from an Indian market readiness standpoint, it is inevitable. It is a matter of when, not if, and only time will tell whether the Indian market is mature enough to handle orderly inflows and outflows. As markets become more liquid, the ability to handle vertical inflows becomes more credible (increases), so we will achieve this goal.
Second-quarter results were in line with earnings estimates, but sales weakened. What is the outlook for core performance for the coming quarters?
One of the reasons earnings beat expectations is the fact that input pressures have eased, as have supply chain disruptions and raw material costs. In addition, companies have generally become more efficient in cost management, which was an important mantra after the Corona crisis. So, apart from a few glitches here and there, we have managed our earnings quite well. When it comes to overall revenue, we continue to be conservative. The only aspect that we do not fully understand is consumption growth across all sectors. There is a lot of talk about top tier, bottom tier, experiential consumption, product consumption, urban consumption and global consumption. The jury is still out on what a resilient interest rate is. But generally speaking, seeing the increase in consumption this festive season, people are just optimistic about how this festive season has gone and will probably get a better color once the December numbers come out.
Will India Inc.'s spirits return after the major companies have reduced their debts and the banks have also cleaned up their balance sheets?
Some of these decisions may take place around the (general) election result as it is a major event. If we talk to Indian companies in general, there is currently a pro-capitalist mindset. Will every capital expenditure result in equity financing? Probably not. But the point is capital expenditure: if it is zero, capital expenditure will be negative at some point, if not this year or next year, then the year after that.
It is important to note that the attitude of Indian companies towards equity or debt, especially due to the Corona crisis, has changed to a higher level where we will prefer cash.
We don't mind sitting on more cash than being more in favor of debt. So you'd likely be sitting on more cash than debt, more than what a corporate finance expert would guess about the ideal equity ratio. We often find that investors reward Indian companies for being more liquid than debt.
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