Mumbai: The chairman of financial services firm Enam Securities Pvt. Ltd, Vallabh Bhanshali, spoke about the market and the new listings. Enam was share-sale manager for the recent initial public offerings (IPOs) of Adani Power Ltd and Indiabulls Power Ltd. Edited excerpts:
Are markets back on track and are Indian firms out of the woods?
I think there is a bit of caution, of course. But, overall, I think there is a huge amount of confidence. There is a bit of a surprise element also, which is actually a pleasant surprise.
What is that surprise?
Power tale: Enam’s Bhanshali says the sector may stay attractive.
People are quite surprised by the strength of the recovery in India, or rather continued absence of any weakness, and there is month-on-month improvement on sentiment, demand and so on.
The global news, at least as far as India is concerned, continues to become better in terms of money flow, in terms of interest in India and investment in India. I think people are quite surprised.
When you say surprised, is it the strength of the recovery which has left them surprised, or are you saying that some believe that it is unattainable given that the global fabric has not mended fully?
Surprise in the sense that people thought the number of QIPs (qualified institutional placements) that got done will not get done and that such large PSU (public sector unit) divestment programme may not happen or that people will not have interest in continued investment in the secondary market, and things like that.
So quite contrary to the general global gloom, people find that India has continued to shine. It is just not one of differential pricing. When the markets were at, say, 10,000-11,000 or 12,000 (points of the Bombay Stock Exchange’s benchmark index, the Sensex), people thought India was cheap. But even at 16,000-17,000 (points), there is discreet India interest and that is a surprise.
Is it the return of confidence or a function of Indian companies having been successful at raising money or is it the underlying demand which is making people confident?
I think there are two-three things. One is the underlying demand in India—that is the demand for goods and services—has remained strong, I think supported first by the rural India and now increasingly by the urban India. On the other hand, global liquidity continues to find movement into India, and thirdly, the long-term story in India was always good. The fact that it has sustained so nicely in the last 12 months makes it even better.
This is something that we cannot always assess and these are the things that are adding to this pleasant surprise.
The recent experience with IPO listings for power companies has not been great. Has that taken any sheen off the power story?
Not off the power story as such. But yes, valuations have to be more sensible not only for power companies, but for all companies that come to the market. One thought that these prices will recover, (but) they haven’t. That is reality. But as far as the underlying story on power is concerned, I think, for the next several years, that story is likely to remain attractive.
What is the general investor feedback about the kind of government paper which is coming in?
The interesting thing about this market is that the excitement is rather concealed. Investors are not really showing the kind of exuberance that we saw in 2007. It is very discreet. Only in some cases we find that we can hear in one-on-one discussions also that people are specifically saying, yes, I am interested in this. People are always saying, let us examine it, and if everything is right, it’s getting done, which is a very healthy thing.
Government paper is in that category; there is a discreet show of confidence in that. But our sense is that government paper will get all done because the long-term record of PSUs in creating value for investors has been fantastic. And one thinks that the government is learning its lessons about pricing the issues.
Do you expect a lot of it starting in January?
The government won’t do a lot of it in the sense that not any and every company will be able to go public. The government has an agenda, has a priority as to what it can and what it cannot do. I think generally the attitude is that whatever can, over a period of time, get done, let’s go ahead and do it.
So we don’t have full visibility on the list, but as you already know, some of the ones that have been announced, I think they will get done over the next three-four months.
What about commodity companies?
We heard very confident statements both from chemicals, petrochemicals companies and from metals companies that they think the worst is over. They think that demand is emerging. They think the global economy, the developed world may take some time. But there is this wonderful way in which markets work and when you have held back consumption for a while, it comes back.
So I think because there is no new supply—supply has dwindled considerably—no new mine openings are happening... So we see these companies talking about balance being restored to markets.
What is the general sense you have heard on Indian valuations? Are people saying that earnings will accelerate at a pace where valuations will not look expensive next year? Or do they seem apprehensive about buying into various sectors in India?
I don’t think people are saying that, but the underlying and between-the-lines statement seems to be that probably this is how it will be and let us not get very exuberant now. Let some time pass that keeps the valuation in some range. And that is the behaviour that you are seeing in the market. The market has been fairly range-bound, biding time. And investors also seem to be giving the sense that let us wait it out, things should improve.