'India in a sweet spot': UBS India head explains his

optimism for 2020

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outlook-120111101445_1.html

November 11, 2020

Despite the coronavirus pandemic, equity capital raising has hit a record this year. Anuj
Kapoor, MD and Head of Investment Banking, UBS India tells Samie Modak what
have been the key drivers and trends for the primary markets and the outlook for next
year. Edited excerpts:

2020 has been a record year for fund raising. What have been the key
drivers for this?

The main trigger for the surge in equity markets has been the massive amount of
stimulus injected into the global financial systems. It has provided investors with
confidence that markets will continue to be supported by government balance sheets
and persuaded many to look beyond 2020 and price companies based on their expected
financial performance in 2021 and 2022. At the same time, the favorable environment
has prompted many companies to accelerate their issuance plans. Those hardest hit by
the virus, in sectors such as travel, consumer, leisure and entertainment, had to
recapitalize their balance sheets. While, healthcare and technology companies, the two
greatest beneficiaries of the pandemic, have sought equity financing for strategic or

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opportunistic reasons. Companies also tapped the markets to avoid liquidity shortages
and build ‘confidence capital’ to lessen the impact should the economy deteriorate
further.

What is the outlook for the next 6-12 months?

I believe we’re in the early recovery phase of the cycle which implies an extended period
of low inflation and low interest rates - an environment that, typically, favors equities
over bonds. But after such a rapid rebound, an equity market pullback would not be
surprising in the short run. While the US election result is behind us, markets may
remain volatile given the spectre of second or third wave of the pandemic. Of course, the
emergence of a vaccine has the potential to provide markets with a significant tailwind. I
feel India should be in a sweet spot and remain constructive on the market outlook for
2021.

Do you expect companies that have filed offer documents pre-covid to come
to the market?

To date, India's equity markets this year have been anchored primarily on rights issues,
QIPs and block transactions but there has been a recent surge in IPO volumes. While
market activity can be expected to slow towards the year-end but in 2021, as the local
and global economies recover, I expect Indian companies – both those which filed pre-
Covid and new issuers – to seek to take advantage of the uptick in momentum and
liquidity via the launch of IPOs.

How has the complexation of companies that are filing now changed? Has
the appetite for financial companies taken a beating?

The pandemic has prompted a decline in the number of companies filing for an IPO
over the last six to eight months. Some are updating their already-filed offer documents
to reflect the changes in the business environment. The next few months is likely to be
dominated by issuance from resilient sectors like healthcare, technology, chemicals,
consumer and REITs but it will be some time before activity from the hardest-hit
sectors, such as hospitality, real estate, entertainment and retail, picks up. Financial
services is usually the most prolific sector in terms of issuance volume, and I don’t see
that changing in 2021.

What have been the key takeways from recent delistings?

In recent months, stocks including Vedanta, Adani Power and Hexaware, have been
involved in delisting proposals which have attracted enthusiasm on the part of
investors. To ensure that companies don’t take a revolving door approach to markets,
Sebi specifies an elaborate set of regulations not prevalent in other markets for
companies wanting to go private. However, in practice, a number of delisting offers
remain in limbo due to an unending tug-of-war between promoters and investors.
Given that the promoter mopping up a 90 per cent stake is a pre-condition to delist, a
single shareholder demanding an outlandish price can scuttle a delisting proposal that
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has widespread support elsewhere. On the other hand, many promoters, in an inversion
of their IPO strategy, choose moribund markets or a sectoral downturn to launch their
delisting offers. In light of the above, Sebi could reconsider the pricing formula for
delisting.

Will conducting roadshows online become the new normal? From an

investment banker’s perspective what has changed post covid?

The advent of virtual roadshows has significantly reduced the time, cost and effort
associated with marketing a capital markets transaction. The technology has proved to
be up to the job and issuers and investors have experienced the ease and effectiveness of
online roadshows. Nonetheless, face-to-face interactions are useful in building trust
with investors, particularly in the case of a new issuer for which there may be limited
historical data. It is clear that the pandemic will compel the industry to review its
strategic agenda, develop and communicate a return-to-work strategy, and consider
digital enablement of their workforce.

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