Mumbai: It has been a volatile third quarter for equity markets in India marked by uncertainty in investment decisions in both public and private marketplaces, which has impacted valuations across sectors. In an interview with Mint, Ganeshan Murugaiyan, managing director and head of investment banking and strategic coverage at BNP Paribas India, lays down his expectations for this year and the underlying themes which will drive investment activity. Edited excerpts:

How do you see the investment climate in 2019? How much of an impact do you see from 2019 Lok Sabha elections?

We must not forget that the Indian economy is still strong in a global context led by domestic consumption and is poised to grow at more than 7% in 2019. Also, several of the larger groups today have much stronger balance sheets. When we speak to our key corporate clients, there is a distinct focus on growth and investment in India. We should be moving towards a positive investment climate barring any negative surprises, global or local. Elections always have an impact on the investment climate, especially the markets. That being said, we have gone through a series of elections globally in 2018 with little impact and 2019 will see some key elections, including in India. This will increase the volatility in the short term but we do not believe this would impact the investment strategies of strategic investors.

There are some private equity firms that are still struggling to exit Indian companies. Do you believe 2019 will be better in that regard?

We believe 2019 will be an active year for private equity in terms of exits. Firstly, there are several PE exits which were dependent on the IPO markets that have been pushed out to early 2019. While the stock market did witness a correction, we believe that markets are likely to provide several windows of opportunity in 2019. Secondly, we will continue to see several M&A exits to strategic buyers or a PE to PE roll-over. We are ourselves working on a few of these trade sales.

Companies are not able to raise equity from the primary markets and the debt markets too are squeezed because of liquidity issues. Which companies do you think are going to be the worst hit because of this?

The situation is different across sectors. Some sectors are continuing to face headwinds, for example, infrastructure. However, with improving growth parameters and sector outlook, some investor concerns towards other sectors are getting mitigated and we do see green shoots of investment. Also, as some mature assets get monetized with infrastructure focused funds, there will be opportunities to monetize these assets and redeploy them for growth.

How are the opportunities for mergers and acquisitions (M&As) currently?

By and large, 2018 has been a year of consolidation and we have seen some of our key strategic clients, both local and multinational, buying large assets. We are likely to witness a continuation of this trend. M&A activity will, in our view, be centered around the following themes in 2019. Firstly in the PE universe there are significant number of investments which are maturing for exits. Secondly, there will be sale of non-core assets by some of the larger groups to rationalize and refocus. Also, opportunities from the NCLT process which provide consolidation opportunities.

Do you think there is a need for companies to rationalise the valuation expectations from the initial public offerings ( IPOs) given some recent issuances where the response has not been been very encouraging especially from retail investors ?

Statistics can sometime be misleading unless you look at the full picture. One key element that is missed while talking about under subscription in IPOs is to look at this in the context of significant flow of retail money into mutual funds over the past few years. We have been witnessing unprecedented flows into the equity mutual funds via regular investments and SIPs which continue to be strong. This eventually leads to markets maturing where most small investors prefer to allocate their equity portion of savings to mutual funds rather than investing directly in the market. Therefore, I would not conclude that valuations are a sole driver of the trend. In any large IPO, the valuations are arrived at after extensive marketing with institutional investors and local broker meetings

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