We are at the beginning of a healthy IPO cycle: BofA MD Roy

Subhrajit Roy, managing director and head of global capital markets, Bank of America.
Subhrajit Roy, managing director and head of global capital markets, Bank of America.


  • Subhrajit Roy anticipates an acceleration in capital markets activity in 2024, in view of the deleveraging of corporate balance sheets and restarting of the capex cycle.

MUMBAI : Often investors reward corporate India to be more cash positive than in debt, says Subhrajit Roy, managing director and head global capital markets at BofA in an interview. According to him, the capital markets activity is expected to pick up pace next year as corporate balance sheets are now deleveraged and capex cycle is getting restarted. Edited excerpts:

It has been a pretty good year for capital markets activity. How do you see the year so far?

The year 2023 has been interesting with activity coming in phases. The first four months were quiet, then in May we saw a return of broader risk appetite with block deals leading the way. Blocks have been resilient throughout the last couple of years irrespective of the market conditions. Every quarter, blocks have been averaging around $2.5 billion-$3 billion. This year was unprecedented as block deals worth $5 billion were executed in the April-June quarter. This was due to the demand side has pick up and the supply was reasonably stable too. It was never a zero, unlike, let's say IPOs and follow-ons, which had periods of no activity.

IPOs seem to have come back strongly with the recent ones including Tata Technology listing seeing unprecedented demand. Will this continue into 2024?

IPOs have been absorbed well because the domestic demand has always been strong. But I think they're also now being balanced well by FII demand as well. Notwithstanding the overall FII trajectory, where we have seen the activity to be choppy. It is a balanced demand scenario, in which the outcome is a win-win for both buyers and sellers. And I think generally, corporate India sponsors have also been very mindful on how the stock would trade post listing.

I believe we are at the beginning of a very healthy IPO cycle. Though there is a bit of a wait and watch by corporates with regards to the national elections next year, I think that if the election outcome has no major surprise, there will be a substantial surge in follow on activity.

A number of global brokerages have upgraded Indian equities to outperform in the impact what is your top picks? Does India figure and what is your stance and why?

I think it is well flagged that within emerging markets (EM) India is among the top picks. Now, the first or second or third could keep changing depending on which other countries are there in the mix. But I think if we look at reallocation of resources, new allocation of resources, emerging market, markets ex-China, everything seems to be favoring India from their perspective especially from geo political stability and relative growth perspectives.

What is your take on India becoming part of the GBI-EM, the JP Morgan index from June next year? Is there a flip side to it?

I think it’s too early to say, but its long awaited and certainly a move in the right direction. From an Indian market maturity standpoint, this has been inevitable. I think the boost in offshore investor participation in domestic markets will certainly pave the way for further deepening of domestic markets and the Indian market has matured well and needs to be nimble to handle orderly inflows and outflows. As markets turn more liquid, the ability to handle inflows and outflows credibly is important.

The second quarter results have shown inline earnings but top line has moderated what is the outlook on core performance in the coming quarters.

Part of the reason why we have seen earnings beat the expectations also is the fact that input pressures have eased. So have supply chain disruptions, and raw material costs. Also, corporate entities have become more efficient in managing costs in general, that has been an important mantra post-COVID. Which is why earnings have been pretty well managed, apart from some disruptions.

On the overall topline front, we feel quite constructive. The Make in India thematic, government spends and core sector performance should drive healthy revenue outcomes. The current GDP growth numbers also bear out these trends. The markets however will closely watch the consumption growth across verticals. There is a lot of talk about top tier, bottom tier, experiential consumption, product consumption, urban consumption, and global consumption. The jury's still out on whether there is broader resilience in consumption. But generally, if you see the takeoff of consumption in this festive season, people are bullish and probably we will get a better view once the December numbers are out.

Now that the large corporates have deleveraged and the banks too have cleaned up their balance sheets, will the India Inc.’s animal spirits return?

Some of that decision making may trigger around the election outcome as well. If we generally speak to corporate India, there is a pro capex mindset right now. Will every capex lead to equity funding? Probably not. But the point is capex will start kicking in as corporates feel more sanguine about the growth outlook and stable operating environment. What is also important to note is that corporate India’s attitude towards leverage, especially through COVID, has rebased to a new normal where there is a preference for cash. Coporates don't mind sitting on more cash than being more pro-debt. We often find investors reward corporate India to be more cash positive than in debt. As a combination of these factors would expect strong capital market activity to follow, be it equity or debt, once Corporate India meaningfully embarks on this capex cycle.


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