Sumit Jalan, co-head of India Investment Banking & Capital Markets, Credit Suisse, says the economy is benefitting from four key engines of growth – i.e. financialization, digitization, formalization, and premiumization – which structurally could lead to a ‘super-cycle of IPOs’ in the domestic capital market.
Jalan is responsible for Corporate Coverage, Origination and Execution for M&A, Equities and Financing in India. Jalan joined Credit Suisse in 2010 from Bank of America Merrill Lynch, where he was responsible for origination in Equity Capital Markets.
In an interview with Moneycontrol’s Kshitij Anand, Jalan said he expects the IPO activity to be well-diversified across sectors, with tech, pharma, healthcare and new age industrials being the most active.
Edited excerpts:
Q) What a year it has been for primary markets. We have already seen many high-flying IPOs, and the list seems to be getting bigger by the day. What are your views and what does history suggest about the euphoria that we are seeing?
A) India is witnessing a confluence of global macro factors such as a tsunami of global liquidity, diversification away from China equities, and acceleration of digitization due to Covid.
These factors have benefitted the Indian economy, which was challenged from capital availability, poor physical infrastructure, and significant flows into China relative to India.
The economy is already benefitting from four key engines of growth – i.e. financialization, digitization, formalization, and premiumization – which structurally could lead to a ‘super-cycle of IPOs’ in the domestic capital market.
Quality and scaled assets, historically funded by private capital, are finding their way into the listed space. This is healthy for the country in the long run, and will likely continue in the medium term.
Q) What kind of fundraising activity can we expect for the rest of the year and which sectors would be most active?
A) With many issuers and sponsors having preponed their listing plans by a year or two, the second half of the year is likely to be busy in terms of fundraising activity.
We expect the activity to be well-diversified across sectors, with tech, pharma, healthcare, and new age industrials being the most active.
Q) What’s been driving the euphoric investor participation in recent large Indian tech IPOs and do you expect it to continue?
A) The tech sector has raised over USD 40 bn over the years from private capital, with many valuable businesses established that will continue to pursue a public market listing.
Investors will continue to participate actively in quality businesses that are dominant players in their sectors.
Q) How are FIIs looking at the primary markets? They have turned net sellers in the cash segment of equity markets for the past 3-4 months. How does the number stack up?
A) FIIs are approaching the market with a discerning mindset, rather than taking a carte blanch approach. Companies that are leaders in their sectors, with dominant market share and high margins, irrespective of their specific industries, will remain attractive to FIIs.
Volatile businesses and sectors are seeing cautious optimism unless they are in the midst of a super-cycle such as metals, mining, and commodities.
Q) What are institutional investors putting money – is it for listing gains or long-term investment. But, when the issue gets oversubscribed there are higher chances of non-allocation or getting few shares.
A) There are both kinds of investors. High growth stocks have typically had large first-day pops, thereby making IPOs a separate asset class in the short run, with high expectations of aftermarket performance. Some investors are focused on the long term, while others seek momentum in the short term.
Q) There is another debate – should one look for investing in IPO or secondary market post listing. Which one is better?
A) Principally, investing in an IPO may be better because at a median level, listing gains could be around 15-20%, as against buying into the stock later.
Having said that, not all IPOs provide a better opportunity to participate. A company’s valuation, fundamentals, and growth prospects determine whether investing at the time of the IPO or in the secondary market is better.
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