Insipid, pedestrian, nondescript, stale, pallid, limp.
Choose your word – each one neatly sums up the general state of India’s pre-Covid capital markets.
Year after year, the market underwhelmed. While the likes of the US and China created stock offerings as if they were churning milk, India was a perennial laggard. It was the land where IPOs were always smaller than expected, and where investment banking fees went to die.
How quickly things can change. In the year to August 6, only the US has generated more fresh capital via onshore IPOs: companies completed 189 new share listings in Mumbai in that period, raising $5.8 billion, according to data from Dealogic.
The same is true in equity capital markets, where India again ranks second, behind the US and ahead of Japan, the UK, Saudi Arabia and China, with firms collectively raising $32.6 billion in the year to August 6. Every part of the business is booming: so far this year, issuers have raised a cool $16 billion via 71 block trades, already surpassing 2023’s full-year record of $14.5 billion raised via 67 issuances.
Little wonder every investment bank was so eager to chat when Euromoney visited Mumbai in July.
Citi, which has been continually present in India since 1902, has always been strong onshore. But this year feels different. The US bank is lead-left arranger on the $3.5 billion-plus IPO of Hyundai Motor’s India business, with shares set to start trading in Mumbai in late August, and lead bookrunner on Ola Electric’s $732 million IPO, completed in early August.
Through the first seven months of the year, Citi advised on $6.3 billion worth of ECM deals and $8 billion worth of M&A transactions, putting it ahead of all its Wall Street rivals. In July, it unveiled plans to boost onshore headcount across the investment banking division from its current level of 30.
“We believe this is a breakout year for India’s capital markets in many respects,” says Rahul Saraf, head of investment banking for Citi India. “We are both number one in M&A and number one in ECM for the first time, and we aim to end the year in that position.”
Our pipeline is very healthy, with almost $20 billion in transactions in the pipeline across ECM and M&A. We see robust activity across the next four to five years
Rahul Saraf, Citi India
He adds: “Our pipeline is very healthy, with almost $20 billion in transactions in the pipeline across ECM and M&A. We see robust activity across the next four to five years.”
This also feels like a breakout year for Jefferies, a much younger operator. The New York investment bank made a splash in 2019 when it hired a dozen people from Hong Kong-based CLSA. The same year, it moved to refurbished premises in Mumbai’s Nariman Point, where it employs around 100 people across investment banking, equities and sales.
Prior to 2024, not once did Jefferies rank as a top-10 generator of investment banking revenues, according to Dealogic. But in the current year, it ranks number one, having generated $42 million in the year to August 6.
Ashish Jhaveri, the firm’s head of India investment banking, reckons the opportunities in India today are three-fold.
“One is corporates going public,” he says. “The second is private equity firms taking their investments public. The third opportunity is global multinationals with a significant India business, taking advantage of those assets by either raising more liquidity against them or going for an IPO.”
His colleague Jibi Jacob, Jefferies’ head of India ECM, tips the second half of 2024 to be “far more resilient” in terms of deal size and new listings.
He adds: “We believe the average IPO deal size will hit $250 million in the next two to three years, driven by demand for new paper, and from private equity firms looking to exit assets and buy into new opportunities.”
Jacob adds: “By 2030, India’s overall market cap is expected to touch $10 trillion in value. That’s great – but it also means that more [new] paper needs to be created.”
To market
A host of firms are tipped to come to market in the next 12 to 18 months. August started in fine fashion, with Ola becoming the first Indian electric vehicle maker to sell shares publicly.
Its stock jumped 44.7% across the first three days of trading.
On August 13, Brainbees Solutions saw its shares jump 52% on debut in Mumbai. The SoftBank-backed online vendor of baby products raised $500 million via its initial stock sale.
Bankers point to a host of pending share offerings, ranging from sure-things to could-bes. If Zomato’s success is anything to go by, its online food delivery rival Swiggy should aim to raise north of $1.3 billion in a stock sale slated for the final quarter of the year. Zomato’s July IPO was oversubscribed 35 times; since its debut on the National and the Bombay stock exchanges, its market value has more than doubled, to $27 billion as of August 14.
India has over 110 unicorns, and they will all come to market at some point in time. It is just a matter of when.
“You’ll see 120 to 150 of them going public in India – it’s just a matter of when,” says Kaustubh Kulkarni, India senior country officer at JPMorgan.
But the most hotly anticipated listings over the coming year are both likely to be backed by Mukesh Ambani’s conglomerate, Reliance Industries. Jefferies tips Reliance Jio, its telecommunications arm, to be valued at $112 billion when it completes its IPO, likely in 2025. Bankers estimate market value of Reliance Retail, the country’s largest retailer by revenues, at north of $120 billion.
Even if both firms sell just 7% of their equity, their stock offerings would be record-breakers. At present, Life Insurance Corporation of India’s IPO is the biggest on record, having raised $2.45 billion in 2022. This is why Jefferies’ Jhaveri reckons the “real breakout year for India’s capital markets is going to be 2025”.
Adds Citi’s Saraf: “In the five years before 2024, there were five, $1 billion-plus equity capital market trades in total. In the last six months alone, we’ve had four, and in the next 12 months we could have another 10 or more.”
By then, LIC’s record seems all but certain to be broken. When South Korean automaker Hyundai’s India unit completes its domestic IPO later this month, it will surely create a cascading effect as a raft of other global multinationals rush to assess their local operations and plan capital needs accordingly.
One firm actively considering selling shares in its India business is the Norwegian investment firm Orkla.
India’s stock markets are already home to a number of global firms, many of them vendors of fast-moving consumer goods or engineering equipment. Unilever, Nestlé, Siemens, IBM, ABB – all have domestic listings, in many though not all instances because they were forced to carve out local businesses decades ago, when India was a largely sealed economy.
Hyundai’s pending float feels different. It is a serious domestic player, ranking as the second-largest car maker after Maruti Suzuki, with plans to raise its direct onshore investment to $9 billion, from $5 billion at present. The listing should help make it better at valuing its onshore operations and marketing itself to domestic investors. If it wants to buy onshore assets in future, then having a local stock listing can’t hurt.
Why wait?
Where will all this lead?
Pursuing an onshore IPO in India isn’t for every global corporate. To succeed, their local business would need to be sizeable, stable and correctly valued. They will also need to ask themselves if a capital raise of this kind would help them expand their business, boost their brand and presence, and value a local business more precisely.
But these are conversations that pretty much every global firm worth its salt is having, the point being: can it afford not to consider amplifying its presence in a growing market with rising incomes, an expanding manufacturing base, and oceans of human talent. And if a local listing is the correct course to chart, then why wait?
Here’s Jefferies’ Jhaveri: “Is everyone thinking of doing an IPO or a capital raise? No. But everyone including multinationals is seriously evaluating the India opportunity.”
And here’s the India chief executive of a European lender: “It’s not that you’ll see hundreds of foreign firms selling shares here. But we are having select conversations with clients.”
To be sure, India has been here before. In a market that has historically whipsawed violently between overconfidence and glum pessimism, the hardest thing to find for investors has been viable middle ground. Visit Mumbai today, however, and you find neither of those emotional extremes, just a group of bankers quietly going about their business, confident that this is India’s time to shine – and that its incandescence will translate into higher income and fees.
We used to sell India in the 1990s on the promise of high growth, which was seldom delivered. Then the 2000s and 2010s offered growth but not the financial scale. Now, the markets are strong, the economy is strong
Sumit Jalan, UBS
“We used to sell India in the 1990s on the promise of high growth, which was seldom delivered,” says Sumit Jalan, India head of global banking at UBS. “Then the 2000s and 2010s offered growth but not the financial scale. Now, the markets are strong, the economy is strong – promise, growth and scale are all headed in the right direction.”
Adds Pramod Kumar, India chief executive at Barclays: “India is being talked about by a lot of our global clients. It’s back on the radar.”
Today, investors can point to any number of reasons to put capital to work in the country. That wasn’t always the case. For way too long, inflation and growth were inverted, with the former too high and the latter too low. Stifling bureaucracy deterred foreign investors and woeful infrastructure frightened away manufacturers. Domestic stock markets lacked depth, in that there weren’t enough credible blue-chip stocks – an issue that persists today.
But most of these problems are being resolved. Infrastructure in the likes of Mumbai is improving fast. The IMF tips India’s economy to expand 6.8% this year. Prime minister Narendra Modi came good on plans to slash red tape and build a proper industrial base. The currency is stable and corporates continue to report strong earnings. While other countries have seen growth figures shredded by geopolitics, India has taken advantage of conflict in Europe to drive a hard bargain for Russian oil.
There’s so much net new money coming to the market, which needs to be put to work in some way. You need new paper, otherwise that money will just be put to work in the same old secondary shares
Kaustubh Kulkarni, JPMorgan
It has also benefited from China’s fall from grace in the eyes of investors. The BSE Sensex, a free-float index of the 30 most heavily traded Indian stocks, is up 9.21% in the year to August 14, and up 20.7% over a 12-month period. Compare that with the Shanghai Composite index, which is down 10.31% over the past 12 months, due largely to concerns about stodgy growth and erratic decision making by China’s leaders.
India’s share boom exists for reasons both good and bad. On the negative side of the ledger, more than 85% of all equity issuance on India’s bourses this year is in the form of secondary shares. That’s understandable: buyout firms, multinationals and local firms all want to raise capital while they can.
But at a time when more individual and institutional capital is flooding into domestic shares than ever before, it does point to a glaring need for an awful lot of new paper.
“There’s so much net new money coming to the market, which needs to be put to work in some way,” notes JPMorgan’s Kulkarni. “You need new paper, otherwise that money will just be put to work in the same old secondary shares.”
On a tear
On the other hand, rising share prices are also proof that investors of all stripes believe in the country’s future. Foreign institutions have been firm advocates of India stocks for years. The big step-change is how many domestic investors have been converted to the cause, with an estimated $3 billion flowing into domestic mutual funds monthly.
“A key trend is the financialization of the economy and domestification of money supply,” says UBS’s Jalan. “We have $50 billion-plus in investment allocated just to equities annually – savings are trending sharply away from gold and real estate.”
That is reflected in the number of dematerialised or ‘demat’ accounts – licences to own stock portfolios that also let investors digitally track ownership of tradable assets. At the end of March 2020, 55.1 million active licences had been issued by the Securities and Exchange Board of India; four years on, that number is up to 162 million.
Why? Because the markets have been on a tear since the dark, Covid-afflicted months of early 2020.
“Since the pandemic, every correction has been seen as a buying opportunity – and investors have turned out to be right as the market has scaled new highs,” says Kunal Vora, head of India equity research at BNP Paribas.
In recent years, he adds, “these new investors have not seen a prolonged correction.”
And then there is private equity. Buyout firms have been present onshore for a couple of decades, but their devotion to the market tended to wax and wane. In recent years however, they have doubled and tripled down on India.
Selling assets at a premium today here is typically a swift and seamless process.
Strong exits by PE investors through the capital markets, be it via IPOs or block trades, gives them confidence to reinvest larger sums in India
Sonia Dasgupta, JM Financial
“Strong exits by PE investors through the capital markets, be it via IPOs or block trades, gives them confidence to reinvest larger sums in India,” says Sonia Dasgupta, investment banking CEO at Mumbai-based JM Financial.
In the four years to the end of 2020, the sum of all onshore PE exits totalled $9.6 billion, according to data from AVCJ. That compares with $30 billion over the next three years. Notable divestments since 2021 include: Tiger Global Management’s sale of a 23% stake in cloud software firm Freshworks, for $1.2 billion; KKR recouping $1.1 billion from the sale of a 27% stake in hospital chain Max Healthcare; and, in April 2024, Bain Capital selling a block of shares in Axis Bank for $429 million.
“Buyout firms have a lot of confidence at the moment,” says Jefferies’ Jhaveri. “Taking assets public is a definite opportunity – and has been for a while.”
Simple, profitable, exits always make reinvestments easier to justify. In March, Blackstone said it intended to add $25 billion in India private equity assets to its portfolio over the next five years, hire 20 more investment professionals, and double its office space in Nariman Point, Mumbai’s old financial district, which in recent times has gained a new lease of life.
Given the rising importance of India to the buyout world, it can hardly be a coincidence that so many key PE firms have chosen India-born and educated experts (Amit Dixit at Blackstone; Gaurav Trehan at KKR; Ganen Sarvananthan at TPG Capital Asia; and Vishal Mahadevia at Warburg Pincus) to head up their Asia operations.
The concomitant benefit here is that PE investments and divestments are a boon for investment banks, particularly when it becomes a reliable and recurring business. Whether buyout firms pay higher fees than other clients is debatable; what is true is that they are willing to pay well if a trusted adviser can unearth an attractive new buyer or find a way to generate short-term capital via, for example, a private block trade.
“Blocks have been a very important part of the business for us. They are driven by substantial ownership from PE,” says JPMorgan’s Kulkarni.
Adds Citi’s Saraf: “You can aspire to get double-digit fees on blocks. You can potentially make a $10 million fee on a $1 billion block – that was unheard of before.”
Pain point
If there is one historical stumbling block here, it is fees. Bankers scrunch up their faces when the issue is raised – the low fees paid by issuers, particularly state-run firms, has long been a bone of contention in Mumbai.
“Fees are compressed,” admits Barclays’ Kumar. But, he adds, “they aren’t bad. It’s not like the US, where you get 6% to 7% cross-spreads, but India is just as competitive as Europe. Volumes have gone up, and fees haven’t compressed as much. IPO fees are around 2% to 3% – pretty much where Europe is.”
Things are indeed improving, for two primary reasons. First, because most of the big firms going public these days are privately run, with a heavy emphasis on key sectors – telecoms, technology, healthcare, finance. And second, because deal size is growing fast, making fees fatter by default.
Barclays’ Kumar says the firm’s onshore investment banking business has “tripled in revenues over the past five years.”
Another banker says: “Fees and volumes are good for us here compared to the rest of the world.”
He adds: “It’s easier today in India to pull off a $500 million trade than a $100 million trade because people want to bite more off.”
It’s easier today in India to pull off a $500 million trade than a $100 million trade because people want to bite more off
A banker
Plenty can still go wrong. India has made missteps in the past, usually by alienating investors, whether accidentally or by choice. It can learn much from China’s concatenation of recent mistakes, from an arbitrary crackdown on key sectors, to its emphasis on high-end technology at the expense of job creation and a once-vibrant property sector.
India might be doing better.
UBS’s Jalan reckons the economy could be growing at “10% to 12% a year today, not 7% to 8%, such is the undercurrent of animal spirits and alignment of economic factors”.
That is not unrealistic: it is where China was throughout the 2000s.
M&A has underperformed, with foreign multinationals wary of buying onshore assets, often due to high valuations.
“In recent years, two-thirds of investment banking activities have been capital markets-based, with one-third related to advisory,” says JM Financial’s Dasgupta. “In the long term, we expect advisory fees to grow, due to rising activity, consolidation, restructurings” and private equity pushing into new sectors.
Yet these are small points. India’s capital markets are on a tear. Fees, volumes, revenues – for Mumbai’s growing army of investment bankers, all the right numbers are headed in the right direction.
A laggard no longer, India today is the land where IPOs go to thrive.
