Asit Bhatia, managing director, global corporate and investment banking, Bank of America Merrill Lynch, focuses on the outlook for foreign capital inflows in the Indian capital markets, private equity and strategic investor interest after the National Democratic Alliance (NDA) government’s return to office. Edited excerpts from an interaction with Mint:
What’s your view on the liquidity crunch and interest rates?
There are factors related to the ongoing non-banking financial companies (NBFCs) crisis that have adversely affected the confidence of market participants. The finance ministry and the Reserve Bank of India (RBI) have been working in sync to ensure there is enough liquidity and confidence is re-established. We have seen that RBI and the government have had a commonality of views and direction. Therefore, I believe they will ensure that confidence returns. The overall (weak) inflationary environment also gives RBI a lot more room to lower interest rates to help spur growth.
What can the Centre do to stimulate growth?
There were uncertainties ahead of the general elections. However, with the NDA government having an absolute majority, we believe it will now focus on growth. Over the past few years, India Inc. has not really invested in growth. Capital raising has been mostly for repairing balance sheets. Some strong companies have bought stressed assets through the Insolvency and Bankruptcy Code. The Centre will need to kickstart growth through more public spending, which had stopped in the last year or so. This will eventually fuel growth and create employment.
What is the outlook for foreign capital flows?
After a lull in 2018, FII flows have been very strong in 2019 leading to a market rally. We, in India, get disappointed with 6-7% growth, but this is one of the highest growth rates in the world. What probably concerned foreign investors briefly were uncertainties ahead of the Lok Sabha polls. With a strong mandate to the government, there is an expectation of a clear vision and direction. I believe that the budget will provide a roadmap on the way forward. As far as strategic capital is concerned, it will start now in earnest because long-term investors look for stability, which we have. Over the past few years, we have seen pockets of investment, mostly in consumer tech. However, we are still not seeing meaningful traditional FDI coming in, mainly because investors were in a wait-and-watch mode. The wait is now over.
Are there new sources of private equity?
In the past few years, we have seen active interest from Chinese and Japanese investors. We are also seeing new investors coming. There is so much liquidity in the global system, and investors see attractive opportunities in India. Also, there are innovative ideas coming in from several credible new-age startups. We are seeing some unicorns out of India. All of this is the right ground for private equity money to play.
How were the first six months for investment banking business?
We have had a fantastic first six months. Besides the two block deals for Standard Life to sell stake in HDFC Life, we led the Blackstone Embassy REITs. We also helped State Bank of India, IndusInd Bank, and GMR Airports raise money via dollar bonds.
We have been active even in M&A. We advised Unilever on its acquisition of GSK’s consumer health drinks business and worked with Tata Global Beverages for its acquisition of the consumer businesses from Tata Chemicals. Our pipeline across M&As and capital markets is very strong. We will work on select quality deals, leverage our global franchise and deliver well for our clients.