'2009 was a good year, next will be brighter'

Investment banking shifted focus in 2009, as capital raising dominated over mergers and acquisitions  advisory. US-based J P Morgan led this shift globally. Vedika Bhandarkar, managing director & head of investment banking, recounts how even in a supposedly bad year, the bank raised about Rs 1,00,000 crore (Rs 1,000 billion).

In an interview, she tells Abhineet Kumar and Sidhartha that this signals hope for the advisory business to pick up in 2010, after a year when J P Morgan was missing from the top of the league table. Excerpts:

So, is it the end of a bad year?

No. A good year is now coming to an end. In 2008, things really slowed down. Till January-February (2009), the equity and debt capital markets were pretty much shut and only M&As announced earlier were concluded. So, 2008 was pretty weak.

On the contrary, 2009 has been good. When we went into the calendar year, it did not look like it would be a good year. The first four months were quiet, but we have seen a spate of capital issuances since May.

It started with deleveraging, but now we are seeing a little bit of growth capital. Things are not back to normal on the M&A front, but there are enough signs that the activity will pick up in 2010.

Despite a lot of growth in capital markets, bank lendings are growing slowly?

Bank borrowings always lag the recovery in capital markets. Companies in most sectors are optimistic about 2010. A lot of profit growth has come from cost reduction.

Companies want sustainable growth for a couple of quarters before they start dusting out old expansion plans. We expect bank borrowings will pick up in the second half of 2010.

In the first quarter of 2008, there were certain public issues that drained out liquidity and forced others to shelve their plans. The next quarter will be a busy one with a large number of issues lined up. Do you again anticipate liquidity issues?

In 2008, the market was not affected because of a few issues. The global crisis had started and money stopped flowing in. Domestic liquidity also started getting tight.

The amount of capital raised this year is just under $20 billion (around Rs 93,000 crore). In our best year, which was 2007, the capital raised was $35 billion. So, there is still a fair way to go. Global liquidity is quite high and the flow into equity and emerging market funds will continue.

On the domestic side, insurance had a tough 2008, but the situation is better now. There are a lot of prospectuses that have been filed with the Securities and Exchange Board of India, there are companies which have raised capital and will come back next year.

Besides, there are very few mid-caps that have raised capital this year. There will be a lot of supply, but we are not sure if there will be enough demand for all the issues.

Will the government's disinvestment programme crowd out private sector issues?

From the numbers announced so far, it does not look so. But if the government wants to bring 10 or 15 more issues, then may be.

How will rising valuations affect M&As, especially inbound deals?

Ideally, M&As should peak when valuations are low. But in practice, it is the other way round. That's because companies, the buyers and the sellers, are not confident during tough times.

Now companies in the US are shifting focus from survival to growth. People have started talking about M&As, which was not the case six months ago. But with strong equity markets, valuations have started emerging as a concern.

Where do you expect to see more activity?

In traditional sectors such as healthcare, information technology services, telecom and general manufacturing.

Are telecom companies getting desperate to expand overseas at a time when consolidation talks are gaining strength here?

There is no desperation. In India, Bharti got some good operating lessons in one of the lowest tariff environments. It has been looking out at markets with similar characteristics.

Consolidation in the Indian telecom sector is a given, but we do not know if it will happen in the next 12, 24 or 36 months. Consolidation is bound to happen with tariffs falling and so many players.

The banking sector is also crowded and there is talk of consolidation…

It is completely linked to the government, which accounts for 70 per cent of the banking sector business. We are much more bullish on telecom consolidation happening sooner.

In terms of financing, will there be more of structured finance in coming days?

The market has come out of a major crisis. Right now vanilla financing seems good. Experimenting is on the margin. In private transactions, structuring is back, but not on the public side.

On M&As, it was a bad year for the industry as a whole. How would you rate it for J P Morgan?

The focus for the company this year was on equity fund raising, and we are ranked number one there (in the global league table). In terms of M&As, there have been very few large completed transactions in India. We closed the DoCoMo transaction earlier this year.

Image: Vedika Bhandarkar