Investor response to the Coal India IPO was tremendous, reflecting the money available for investments. What outlook do you see for banks as a source of funds? Credit growth by banks has been slow in the first half. Do we see non-structured sources of funds growing in significance?
As the economy grows, you will necessarily need to diversify away from just purely banks as a source.
Banking sources in India will always continue to be a critical part.
In the absence of a developed corporate bond market, companies will come to banks for funds.
But post-crisis, most foreign banks have shrunk, so the dynamics has changed.
From an equity market perspective, there is a lot of interest from portfolio managers.
So much so, that the way funds are making allocations for India is changing.
Besides the MSCI index, they are looking at India afresh and increasing allocations to here.
While one hears of hot money in the market -- hedge funds and other short-term players, that dynamics will change by 2011, when you will see mainly longer-term funds with larger allocations coming to India.
On the domestic front, one can see changes with pension funds, the money available with insurance companies, and money available to the equities' market, which will be a huge and growing corpus.
Those will result in more equity-type of investments.
Globally, people are now reconciling to the fact that recovery in the US is going to be slow; the same with Europe.
Globally, you have attention on BRIC countries, Thailand, Indonesia, etc.
A lot of attention is focused on India and China.
From a fundamental perspective, investors are reconciled to the fact that India offers a better longer-term opportunity for investments.
That's reflected in the fact that even though multiples in India are higher, it still attracts investments. It shows the confidence investors have on India.
How much more money could be raised in equities? The government has raised the PSU divestment target.
The $12-15 billion the government plans to raise in the next 12 months will be easily done. The lesson, as the media reports, is that if you price the deal right, there are investors.
A lot of IPOs in the past were priced at the peak.
My expectation is that people will start pricing it to ensure some after-market performance.
That experience is dawning on people. The government issues will go through.
On others, there is a huge flood of transactions.
I don't want to put a figure to it, but it will be a combination of IPOs (a small portion) and divestment by promoters.
It is a growing economy, whether it is power, real estate, energy sector, metals and mining -- all capital-intensive sectors.
One will see capital being raised all the time.
India is hungry for resources and companies are looking for oil assets offshore, minerals assets offshore, coal offshore.
As companies do these deals,
there will be need for resources and issuances.
Insurance companies will go public, at least four or five, once the foreign direct investment limit is changed.
India is a huge growth market.
Then there will be changes in regulatory requirements and one will see banks shoring up capital.
In 2011-12, one will see top banks coming to the market.
There's not going to be any shortage of deals or opportunities for bankers to do.
From our business perspective, it is a very opportune time.
From the India growth story perspective, the next 20 years are going to be very, very interesting.
The fact we are getting equity capability is timely and critical and completes our product suite.
What's the outlook on M&As? In which segment would we see more action?
From an outbound perspective, there is interest in areas such as resources. Metals, mining and energy will attract a bulk of outbound interest.
Inbound: there is a lot of interest in areas such as healthcare, financial services, consumer and pharmaceuticals.
Or areas such as retail, where regulations may change, or the airline sector, or on areas where Indian consumer demand is growing and anything linked to that.
The other is linked to regulatory change -- where foreigners are not allowed or are restricted.
Then there is domestic consolidation -- insurance, banking.
Any challenges? Especially to consolidation?
It's a function of the regulations changing. When that happens, there are multiple views.
There is a crying need for consolidation in telecom. On the financing challenge, debt, the game has changed, as there are fewer banks that can lend.
The challenge companies face is witholding tax and a lot of companies stay away.
The borrowing norms for infra and heavy capital-intensive sectors should be liberalised.
There will be hiccups in equities markets.
There will be windows when you can access the capital markets as they won't get the whole year. The challenge will be to go ahead when the timing is right.
Do we see a growing dependence on foreign capital over the next 20 years?
Absolutely. Capital is fungible.
Full capital convertibility is always a question mark but more and more free flow of capital will be allowed.
People will go to the form of capital that is cheapest. There will be continued reliance on dollar funding, which is cheaper with the outlook for the dollar.
What about M&As in terms of volume?
As a rule, in Europe, they have been 17-20 per cent of their gross domestic product. In the US, 15 per cent of GDP. India is less than 10 per cent.
More M&A activity will happen and the deal size will grow as economic activity grows. In some cases, PE (private equity) investors may want to exit.
If the second generation is not keen to be in the same business, that can be a potential candidate for M&As. The trend is clearly up.
The challenge is to get people who have done M&A deals in India. We will add to our team.