ECM bankers should not let up on India

Amid a global slump in IPO volumes last year, India stood apart. It recorded 81 IPOs in total, the most the country had seen since 2010, and saw $3.8bn in IPO volumes — the highest since 2011. And this was despite a shock announcement by prime minister Narendra Modi on November 8 that he was voiding the two largest rupee notes, effectively removing 85% of the currency in the system and leaving retail investors scrambling for cash.

The pressure on the indices was immediate. While the benchmark Nifty 50 index and the BSE Sensex closed 2016 on a positive note, they plummeted 7% and 5.6% respectively in the aftermath of the demonetisation announcement, before regaining some of their losses.

The move raised concerns at the time about appetite for stocks from retail accounts, but bankers have since brushed off those worries, thanks to plenty of interest from domestic mutual funds and foreign institutional investors.

So it’s no surprise that ECM bankers are heading into the year with a hefty pipeline of deals, including the listings of both the NSE and BSE slated for the first half of 2017. The signs are promising, but there’s plenty that could upset bankers’ plans.

For one, the real impact of the demonetisation may not be clear until corporates release their 2016/17 third quarter results in the next few months.

There is also a lot of uncertainty around what are expected to be a large source of IPOs — real estate investment trusts (Reits) and infrastructure investment trusts (InvITs).

Following years of work on putting together regulations for the asset classes, the first deals are yet to materialise. IRB Infrastructure Developers, India Grid Trust and Reliance Infrastructure are the only firms to have filed for approval for InvITs, while no company has filed for a Reit IPO.

The Securities and Exchange Board of India is still reviewing the three InvITs, which sought approval in September and the latter two both in December 2016, respectively. On the Reits front, the regulator announced an additional disclosure requirement at the end of last year — one of numerous tweaks it has been making for more than a year. If progress has to be made, then Sebi needs to kick things into action.

Meanwhile, the government needs to clean up its act when it comes to divestment of state-owned companies. It has so far met about only 60% of its 2016/17 fiscal target of Rp565bn ($8.3bn).

Admittedly, the argument now is that the shortfall can be plugged by the money brought in from the demonetisation, but failure to meet its divestment targets yet again will not go unnoticed.  

If India wants to build on its ECM success, hitting its budget and opening new asset classes should become priorities. That will ensure that 2016’s numbers are not just a one-off.