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Investment bankers see 58% decline in earnings

By Samie Modak & Sundar Sethuraman
April 07, 2022 09:54 IST
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Experts say companies wanting to launch IPOs will have to scale back their expectations given the fall in valuations.

Illustration: Dominic Xavier/

After witnessing a dream December quarter, investment bankers had a hard wake-up call as the equity capital market (ECM) fee pool shrank dramatically in the March quarter on the back of uncertainties created by the US Federal Reserve monetary-policy tightening and Russia-Ukraine crisis.

ECM fees is the amount pocketed by investment bankers for handling initial public offerings (IPOs), rights issues, and other forms of share sales.

According to Refinitiv, a global data provider, the ECM fee pool for India for the current quarter (until March 18) stands at $29.3 million, 58 per cent lower than in the corresponding quarter in the last financial year.

Moreover, it also saw an 84 per cent drop from the preceding (December 2021) quarter as well.


Most companies had to hit pause on their fund-raising plans amid a sharp fall in the stocks, more so for those in the broader market.

The spike in commodity prices, especially crude, due to supply disruptions caused by the Ukraine crisis and sharp pullback by overseas investors ahead of Fed's interest rate hike took the wind off the sails from ECM activity after a record quarter.

In the December 2021 quarter, investment bankers pocketed a record $181.5 million, riding on large share sales such as Paytm (Rs 18,300 crore/Rs 183 billion), Star Health Insurance (Rs 6,400 crore/Rs 64 billion), PB Fintech (Rs 5,710 crore/Rs 57.10 billion) and Nykaa (Rs 5,352 crore/Rs 53.52 billion).

In comparison, only three IPOs have been concluded so far this quarter -- Adani Wilmar (Rs 3,600 crore/Rs 36 billion), Vedant Fashions (Rs 3,149 crore/Rs 31.49 billion) and AGS Transact (Rs 680 crore/Rs 6.8 billion).

"Investment banking is a cyclical business. After two robust quarters, we have seen a drop in activity. For the business to thrive, we need a robust secondary market. Unfortunately, the volatility has gone up sharply, which has impacted ECM activity all across the globe," said a head of a global investment bank seeking anonymity.

The ECM fee pool has witnessed sharp drops elsewhere in Asia and around the world.

In Asia, the pool saw a 50 per cent year-on-year drop to $1.44 billion, while global ECM fees has dropped 79 per cent YoY to $2.7 billion.

The global ECM fee pool for the December 2021 quarter was $9.4 billion, shows the data by Refinitiv.

"There is a sharp fall in ECM activity in India and across the globe because of the lacklustre performance of secondary markets and lack of investor appetite. I don't see deals happening the way they happened last year. Things will get better if participation from foreign investors improves," said Pranjal Srivastava, Partner- ECM, Centrum Capital.

Experts say companies wanting to launch IPOs will now have to scale back their expectations given the fall in valuations.

The benchmark indices have seen a 10 per cent drop from its January highs before bouncing back.

The price-to-earnings multiple for the Nifty has also dropped from 22 times its estimated 12-month forward earnings to about 19 times.

"It is a challenging task convincing promoters and private equity investors to mark down their valuations," said the banker quoted earlier. "But that's the reality now."

Feature Presentation: Rajesh Alva/

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Samie Modak & Sundar Sethuraman
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