- In an interview with Malini Bhupta,
Debasish Purohitco-head, India Investment Banking, bank of Americasays financial sponsors sit on a lot of powder and want to put in capital.
- Good companies will find investor interest regardless of sector orientation, Purohit says.
- ‘The corrections of the public market have not yet translated into the private market.’
Will there be a financing winter for start-ups after a record high in 2021, with large capital flows at skyrocketing valuations?
Barriers to return have risen as capital has become more expensive and currencies have declined in value. Investors are also demanding a higher safety margin for execution risk and possibly a longer path to profitability. On the positive side, financial sponsors are sitting on a lot of dry powder and are willing to put in capital. The corrections in the public market have not yet been implemented in the private market. Inevitably we will see a number of down rounds in certain pockets – either in multiples or relative to the last absolute value.
What do you mean by changing the color of money?
While last year’s private markets were a broad mix of investors across all spectrums, this year we see more traditional and longer-term money coming into the private space. We are also seeing interest in Sovereign Wealth Funds (SWFs) and large family offices.
What Kind of Companies See Downward Rounds?
It’s hard to generalize, but companies in the top quartile or two will be quite OK. Many companies, let’s not forget, have raised a lot of capital in recent years and are running on cash. They can lower growth ambitions, conserve cash and stick to the core and focus on profitability. And we can already see that discipline playing out.
The secondary market has really picked up in recent weeks with major institutional exits. Can you explain how large interests of existing institutional investors have been stolen?
Last year was a much easier market to put together deals. This year they had to earn their stripes. We’ve gotten nearly $30 billion from the Indian markets. As a market participant, you get an idea of when things change. Portfolio investors are paid to put in capital and not sit on cash. In July we saw signs of life returning, with flows turning net positive. The Zomato block, which we led alone, was the first sizeable secondary trade to test the strength of the market. It was the first major equity transaction led by foreign investors and in hindsight gave the market confidence about opening a window. Over the next two weeks, we saw a wave of (equity capital markets) ECM activity. It was a reversal waiting to happen, the key is to be alive for market turns and structure trades properly.
Is there a preference global investors have in terms of sectors?
There will be shorter term sector rotations. But fundamentally, good companies will find investor interest regardless of their industry orientation. After leading four trades across sectors within a week, we can certainly vouch for that. Markets are usually opened by top and liquid names. As the market gains confidence, products with a longer lead, such as IPOs, quickly follow.
What about private markets?
The $1.1 billion PE infusion into Yes Bank is a great sign of a booming retail market. India is a prime spot for all bulge bracket PEs and valuations, adjusted for growth.
What is the role of mergers and acquisitions in business in India now that the deleveraging of the balance sheets has taken place?
Mergers and acquisitions will continue to be a highly strategic tool for business in India. M&A will be run as much by companies as by sponsors. Incoming activities were largely focused on renewable energy sources. The next leg of incoming capital will be driven around production and energy transition. India’s huge emphasis on ‘Make in India’, energy security and asset monetization will drive inbound M&A in the future. We expect that ICT services and healthcare will also be very active.
For every 100 foreign investors take out of Indian stock markets, domestic investors have plowed back ₹89 this year
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