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00:00Hello and welcome to NDTV Profit. We are at the J.P.Morgan India Investor Summit and joining
00:14me today is Nitin Maheshwari who is the head of M&A at J.P.Morgan India and Abhinav Bharti
00:19who is the head of ECM Equity Capital Markets and the most important segment in the markets
00:24today at J.P.Morgan India. Gentlemen, thank you very much for joining us on NDTV Profit.
00:30Nitin, let me start with you. You are the M&A head. How is the M&A landscape looking
00:36as we speak? Do you see enough interest coming in from companies?
00:41Thank you, Sajid. First of all, thanks for coming here and talking to us. So I would
00:46say M&A is divided into two parts, the corporate M&A and the sponsors M&A. Corporate M&A has
00:52been quite active thanks to what's happening in Abhinav's world where companies have access
00:57to capital, companies are being rewarded for growth. So we are seeing a lot of our Indian
01:02clients actually coming back to the M&A market, buying assets, using the currency, using the
01:08balance sheet that they have. As you know, corporate balance sheets have been very strong
01:11for a long period of time. But we are now finally seeing not just the top five business
01:15groups but actually the next 50 companies looking at M&A very actively. So that's the
01:20Indian buyers. The other thing we see is the foreign strategics who are very eager
01:25and keen on India. They are looking at India for growth. They have not yet, you know, all
01:31the boardrooms are talking about India, that conversion has yet to happen. But once that
01:36starts to roll, we're talking big numbers in corporate M&A when both Indian and foreign
01:41buyers play the role. So as I summarise that, domestic consolidation is driving M&A right
01:46now. There's more that will come from foreign strategics. The second piece of M&A is sponsors
01:52who have actually really driven a lot of the volumes in the recent past. They have all
01:57been in India for 15 to 20 years. They have seen exits. They have made a lot of money
02:01on very good companies. So we're seeing more of that come together and that is actually
02:07driving a lot of M&A right now on the sponsor side.
02:10The biggest flows are coming into the IPO market. If you look at foreign flows, this
02:16year alone, the largest number of flows have come into primary market and IPOs. How are
02:21you seeing the entire primary market and do you see some bit of exuberance coming into
02:26this market? See, there is certainly some bit of exuberance in certain parts of the
02:31market. But at the end of the day, if you look at how the returns that IPO markets have
02:36been giving, it actually goes to show that at least at the pricing point itself, the
02:40IPOs are getting priced quite reasonably. And what it is doing is that it is creating
02:45that virtuous cycle where IPOs and asset classes continue to give returns to investors, which
02:49is what is driving more and more investors to come and look at the IPO. So I look at
02:54it positively. Yes, at some stage, that exuberance in certain issuances will start looking a
03:01very high number. But overall, I would say the health of the IPO market and where the
03:06IPOs are getting priced to begin with, which is where, let's say, the larger long term
03:09investors are participating, that part is continuing to play very well at this stage.
03:14How is the current IPO market different from, say, what we saw pre-COVID? How is it different?
03:21I think two different things, both from supply and demand, if you were to look at it. From
03:25a supply perspective, the sectors which are now being represented in the public market
03:30space has expanded quite substantially. So historically, if you look at it, financials
03:35used to be anywhere between 35% to 40% of total capital raised. This year, it is actually
03:40less than 15%. Now, I'm not talking just IPOs, but actually overall capital raised. What
03:46it all goes to show is that, number one, the financial balance sheets are in a very strong
03:50space or place, which is always good for the rest of the economy. And two, the newer sectors
03:55are starting to come to the market. So consumer tech is just starting out. I would say that
04:00there's a space that has many legs to run on, going for the next few years. But even
04:05consumer retail, look at autos, look at DI. These are sectors which are really driving
04:10the next phase of growth for the economy. And the public markets are doing their basic
04:14fundamental job of providing capital. So on the supply side, that is one big change.
04:18If you look at it from the demand perspective, of course, the domestic story has been phenomenal.
04:23We all know that India has now become a market which can stand on its own basis, despite
04:29whatever is happening on a global basis or global cues. Even if they are negative, you
04:32still have enough savings domestically coming to the market that can support out there.
04:37So I think from that perspective, the diversification both from the sectors and both from the sources
04:43of capital where it is coming. So foreign investors, domestic investors, but between
04:47domestic investors, mutual funds, insurance companies, direct HNI, retail, AIFs, even
04:53pension funds have become very large and relevant now. So I think that is really, really works
04:57very well for markets overall.
04:59We will talk about the role of domestic institutions. But Nathan, you spoke about new sectors coming
05:05in. Do you see enough of demand coming to you, companies coming to you asking for opportunities
05:13in newer sectors?
05:14Yes, absolutely. So if I were to just prioritize which sectors we are busiest on M&A side,
05:20there is healthcare, there is technology and technology has tech services lens and it has
05:25the consumer tech lens. Infrastructure has been very busy because we are seeing a lot
05:31of assets which have been owned by financial investors, those continue to change hands.
05:35We are seeing the newest sector is the manufacturing right now. It is hard to call it newest, but
05:41it is in its new avatar where we are China plus one and Europe plus one and really the
05:46world's manufacturing hub moving beyond services. That is an area where there is a lot of new
05:51assets getting created, which will all have a role to play in M&A, which will all be companies
05:56which will go public not today, perhaps in two years from now or three years from now.
06:00But I think that is an emerging theme which we continue to see and have play. So certainly
06:06there is that new themes, new sectors which are emerging and they will have a big role
06:11to play and clients are asking about that.
06:13And many of them would be in the mid-size space?
06:16I would say that. Mid-size is now for India is defined at at least a billion dollar plus.
06:21So I think just the scale of businesses has also evolved. So we do see many of them coming
06:26in that growth stage to late stage where they are becoming relevant candidates for M&A,
06:32for moving from growth equity to private equity and then to public markets. So that evolution
06:37of India is here and real and that is what we are seeing across both of our products.
06:43Private equity has been investing in the last five years and those are some of the
06:46IPOs which are also coming into the market, especially in the consumer space and tech
06:51space which is there. How do you see that pipeline as we speak?
06:55So that pipeline is obviously quite strong. If I were to think about what we are tracking
06:59at our end, I would say the IPO pipeline just for the next 12 to 15 months, call it between
07:05now to end of 2025, is somewhere around $30 billion. Private equity and venture capital
07:11in some form and manner would be present in at least 80% of that. A lot of it is driven
07:17by the fact that this, as Nitin and I keep discussing, this is what we call it as at
07:22least a third or the fourth cycle where private equity investors have invested, then exited
07:27successfully, redeployed capital back in the country, exited. So we are into that third
07:33or fourth cycle and this time the confidence amongst financial sponsors is much higher
07:38that they could actually take companies where they have majority holdings that would have
07:42generally always gone through the M&A route, but now they believe that they can take it
07:46to the IPO and still keep working with the growth of the company and exit over a period
07:51of time. I think that just bodes for the maturing of the market that we have seen in our country.
07:56And they are getting the valuation they want? Invariably yes. I mean it has a knock-on effect
08:01on the entry multiple as well. So a lot of the thesis for entry is driven by where the
08:07public market exit is expected to be. But so far the numbers are working out.
08:12We certainly see that public markets are a big enabler for M&A, private M&A, because
08:18it's a cycle that is playing out. I think more importantly, mutual funds have now seen
08:23how private equity have owned assets and responsibly sold those assets and made sure that companies
08:29have done well, even after they have sold. Or are they making private equity responsible
08:33for the price? Is it? It is working both ways. The fact is, the private equity investors
08:41also understand that having the IPO done properly is the first and the most important step.
08:48Because if you don't get that in place rightly, and it's not just for mutual funds, but even
08:51across the whole gamut of individual retail investors as well, that allows you to have
08:58more liquidity and the ability to do blocks. The other part of the market that we have
09:02seen is, this year we have seen what, $23 billion of blocks taking place. That is primarily
09:07driven by liquidity in the market. And you will get that only when you do the IPO properly
09:11and in a correct manner. And that's where the domestic institutions are playing a very
09:17big role in that sense. Yes, they are certainly playing a big role. Keeping them grounded
09:23to value, right? Putting some money on the table when you go for an IPO? Yeah, those
09:29are first principles always. We've been talking about it for multiple decades, but now it's
09:33coming into play, right? Indeed. It's a mutually dependent relationship, right? In the financial
09:38ecosystem, there is a certain maturity of company at which they go public and then their
09:43mutual funds are better owners to that company. So I think that cycle continues. And that's
09:48where we feel there's that mutually dependent relationship is continuing to evolve and responsibly.
09:54Mutual funds have evolved in a big way, right? Top five or seven mutual funds which have
09:59more than 100,000 crores of assets are now price setters for IPOs. And that's a good
10:07thing in some way? It is certainly a good thing because, look, at the end of the day,
10:12the price signal should always be as wide and diverse as possible. That's the hallmark
10:18of having true price discovery in an IPO process. The fact that today we have, call it at least
10:2315 mutual funds, five insurance companies, a few large AIFs who manage capital to the
10:30tune of $10 billion or more. And then on top of it, the foreign investors, the long-only's
10:34as we call them, are on top. It allows us to actually have a much diverse books or IPOs
10:41to come to the market. IPOs which are of, call it, I would say, sub-4,000 crore size
10:48or $500 million can now be priced through various different selection of investors who
10:54may choose to participate. That was never the case earlier. Earlier, in the pre-COVID
10:59era, the question that you asked me earlier, the difference used to be that we were always
11:03dependent upon, we need five or seven of these foreign investors to come in to price my IPOs.
11:09That has changed. Today, those investors can still come in and I will price the IPOs. But
11:12if the mutual funds show up and they are, I would say, more often than not required
11:17to be there, it works equally fine.
11:19This pool of liquidity, it's interesting. Five or six years back, mutual funds used
11:25to be participating, but the pool was not as consistent. You're getting 20,000, 25,000
11:30crores every month into mutual funds and that is something which is a good sign for fundraising.
11:39Despite all the movements we're seeing, we're still a very, very small proportion of our
11:43savings. Your and my savings are in equity markets and so is our family's. It's a big
11:48shift that ought to happen over the next several years, and we just started. That is what is
11:53happening with respect to the flow of money. If you just go back, we have 7,000 public
11:58listed companies, but the free float of each company is small. If you look at the US, each
12:04company has 90, 100% free float. On both sides, we are starting with a very small base. There's
12:10a moment that is happening where there's a shift that we're seeing live, but it's bound
12:16to happen and it will be for the next decade. There's no reason to believe that this trend
12:20should change. Abhinav, anything to add on that?
12:23No, I think we're just hitting the tip of the iceberg right now, the way I call it.
12:28Your number of 20,000, 25,000 crores, that's just the SIP number. I know there's this gross
12:33versus net dynamics, which we can't get into detail, but then there is direct money coming.
12:38Domestic savings, which are directly coming into the market, or discretionary flows, which
12:41are coming into mutual funds, are all on top. Our estimates suggest that this number is
12:47the actual domestic savings coming into the capital markets is a number closer to maybe
12:5245,000 to 50,000 crores a month right now on a run rate basis. You add the foreign investors
12:57on top, which I know is correlated a little bit to the global sentiment, but you're talking
13:03about, call it something like a $60 billion to $80 billion of total flows into the market
13:08on an annualized basis.
13:09And that's good for companies maturing from the M&A, in that one way, right? Because private
13:17equity, which was earlier looking for consolidation, now come directly to the market. But which
13:23are the sectors which are very active? You mentioned briefly about healthcare and other
13:27sectors which is there, but within that, are you seeing the valuation issue coming in there?
13:32Because at some point in time, we were looking at valuation of these companies, and then
13:35there was a winter, funding winter, which we were talking about. Now, the IPO markets
13:40are again, are you seeing some rub off coming into the M&A market as well?
13:45So we're not having transactions held back because of value disconnect, right? For the
13:51asset where there's a certain buyer who wants to own that asset and can create value above
13:56and beyond what it's being priced at, we're getting deals done. So we're not seeing that
14:01valuation is holding an asset back. Ultimately, as I said, right, public markets are enablers
14:07here, where either the buyer already is public listed, so they see value for growth, or the
14:14private equity coming in now has a view that, okay, next three to five years, if I buy this
14:18asset, I will take this public, and there will be a certain valuation that public markets
14:23could hold. So we're certainly seeing public markets as enablers. There are select situations
14:28where we advise clients that the best path for you is to go public. And those are transactions
14:33which don't need to go to private markets. So we're seeing each situation is unique,
14:39but certainly many transactions are getting done where we believe that's the right advice.
14:43What about financing? That's been, has been some of the issues for some of the consolidations
14:50as well. Are you seeing that easing up now?
14:53Financing is actually, that market has become very robust. So again, to fund M&A, we have
14:59access to, you know, different pools of debt capital, which is easily available. And we've
15:05seen large transactions all the way from 10,000 crores to $10 billion, right, where financing
15:10from bank market has been available. Now, there are structural nuances on which instrument,
15:16which, you know, source of debt should fund a transaction. But we don't see any bottleneck
15:21because of financing in any transaction. All of our clients have had a very robust
15:26balance sheet. If you see just the last three to five years, everybody's raised capital
15:30at the right time, and there's no balance sheet constraint that anybody has. It ultimately
15:34comes down to what's the right thing for me to do, whether or not I should buy a business,
15:39whether, you know, it is the right, let's say, synergy value that I have, and I can
15:43afford to pay. And once they've decided that, financing is the easier part.
15:48Where is the largest number of queries coming from? Is it inbound, or is it outbound for
15:54you? So it's actually a great question, because
15:56there's a shift that we've seen in the last 12 months. So inbound is a lot of inquiry,
16:02all the boardrooms are talking about India, they want to invest, but that's been more
16:06organic, right, let's hire more people, you know, build more assets.
16:10Organic, basically. Organic, right. So that's what we've seen.
16:12There have been select markets like Japan into India is a very active theme for us,
16:16US into India is active as well. But what's changed in the last 12 months is the outbound
16:20dialogue. So if you see what was happening, you know, 15, 20 years ago, when we saw that
16:25outbound flurry, that is now starting to come back where some of our clients are now asking
16:30us the question, what assets that they, you know, have tracked for a long time, they want
16:35to now consider those and revisit those and actually make those transactions. So we're
16:40seeing that come back as we speak. And which sectors specifically?
16:44It would be around could be pharma, it could be industrials. It is also around selectively
16:49around tech, right and select, let's say capabilities in tech services, for example. But we're certainly
16:55seeing that outbound M&A dialogue coming back.
16:59You spoke about the fact that, you know, the demand for queries into the manufacturing
17:03sector has increased a lot. And that's primarily got to do with the government policies, which
17:07is looking at, you know, more manufacturing units in India, you know, self-reliance on
17:14manufacturing in China plus one or China plus two, what we're looking at. Do you see a lot
17:19of, you know, activity coming into manufacturing in India with foreign companies coming and
17:24setting up or acquiring some of the domestic companies, mid-sized companies?
17:29We're seeing that flurry of activity. So far, it's been about coming in and setting up because
17:34there are certain companies who want to start, you know, greenfield and build it their own
17:39way. But that does take time. So selectively, we're seeing that translate into M&A dialogue,
17:43where either private equity or strategics are looking to own some assets. But it's still
17:48more about organic building, a lot of investment coming in, especially around, for example,
17:53EMS, right? We've obviously seen lots of announcements there. And just the way, you know, some of
17:57the supply chains are, you know, for the largest mobile companies moving to India, it's amazing
18:03in terms of how that's played out. But Abhinav, what will you add on that?
18:06No, I think the thematic around global strategics, looking at India has, and I know there have
18:14been media reports about saying, look, so much of, you know, outflows or monetization
18:20that has happened. But in a few ways, I would say public market themselves are showing the
18:24fact that a number of global strategics are actually tying their destiny in India far
18:31more resolutely. When you evaluate doing an IPO, IPO in India is still a one way street,
18:38really. And while you're maybe selling only 15 to 20% and taking that capital to, you
18:44know, fund growth anywhere else in the part of the world, but the fact is, an IPO is committing
18:48to the Indian market even far more. And we're starting to see that trend also take place.
18:53So from from my perspective, I think we're starting to see this entire trend around of
19:00global corporates, global strategics, starting to look at India far more strategically, saying
19:05that, look, can I fund India from India itself? Can I fund my global operations from India
19:08itself? All of those options today, India is able to provide to them.
19:11Is supply chain going to be a big theme for IPOs and M&Es going forward?
19:16Has to be. Has to be. Because like I said at the start, the number of sectors which
19:22are starting to come and get represented in the capital raise activity has diversified
19:28and increased. Supply chain is a very important part of the entire ecosystem that you would
19:33start seeing. In fact, for certain sectors which investors can't play directly, supply
19:37chain could be the way to actually play them. So I think those thematics would become very
19:42relevant.
19:43Nitin, for you?
19:44Yeah, again, on M&A as well, right? As people identify, what are the gaps that I need to
19:49fill? And that's where M&A will be quite relevant. When private equity realizes that the supply
19:54chain is going to be 10x of what it is today in five years.
19:58Or creating an alternate supply chain.
19:59Creating an alternate supply chain, right? So indeed, we're seeing a lot of dialogue
20:03around that already and a lot of capital being pumped in, both from strategic and private
20:07equity side.
20:08Abhinav, investor profile. Five, six years ago, we had those traditional investors. Today,
20:17we have the younger ones, 18 to 45, investing in IPO, exiting on day one or day four first
20:23week. But the profile has changed and the money which is coming into IPO is something
20:28big which is there. How are you seeing this shift?
20:32Look, I think the shift is certainly there. You can argue, yes, investors are investing
20:39and exiting on day one. The pie has expanded. I think that's the right way to really think
20:45of it. And what that means is that investors who continue to stay invested for the long
20:49term, that group itself, it may be lesser in proportion of the investors who are coming
20:53into the market, but that has expanded as well. To me, it is all science in the right
20:59direction. It will have its own periods when you will slow down a bit. It will become more
21:03exuberant like maybe right now we are seeing a bit of it. But overall, those trends are
21:08in the right direction with people being able to, the ease of doing and investing has become
21:13much better. You can come by mutual funds, invest through your mutual funds or come directly
21:18I think the other part is also on the global investor landscape. My view is that give it
21:25another six to 12 months, the size and scale of transactions that we are seeing in India
21:30will mean that investments into India will not just be driven by emerging market funds
21:35alone. Some of the larger global funds will have their global PMs starting to look at
21:40India because these are transactions of size and scale that becomes relevant on a global
21:44basis. True, India already has 2-2.5% of the global weightage in many of the indexes,
21:51MSCI index. So that fund has, that money has to come through it. But how do you look at
21:59India among the emerging market? Do you see enough foreign interest coming into India
22:04because of this thing and as part of the allocation, are they now looking specifically for primary
22:09issuances because a lot of money, foreign money is coming for primary specifically.
22:14We aren't seeing much of that kind of exuberance in the secondary market but more on primary.
22:19Yes, so primary I would say it's still driven by, let's say right now for the deals that
22:26are happening in the market, 90% will be driven by EM mandates that these global investors
22:32have, so emerging market funds who are investing. This thing will change, you're right that
22:38the specific money for primary market capital is coming through because like I said, primary
22:44market is where newer sectors are coming to the market which are not necessarily represented
22:49in the secondary market. They will take time to get included in the index. So it's not
22:53necessarily because an IPO does not get included in the indexes on day one. It takes them 6,
22:578, 12 months or something like that. So it's a period of time that will happen and people
23:02don't need to wait for, or active investors will not wait for index inclusion to start
23:06allocating capital.
23:07Nitin, final question to you. Do you see Indian companies' balance sheet now good enough
23:13to go and be aggressive in the cross-border acquisitions?
23:19We are already seeing that. A dialogue has started where one, their balance sheet. Second,
23:25their ability to raise capital, both equity and debt, is allowing them to think differently.
23:31Think about what are the gaps I could fill, which are the kind of businesses or capabilities
23:35I could add and we are starting that already play out and we expect that to expand further.
23:40Nitin and Abhinav, thank you very much for joining us on ADTV Profit.