“On the loan side, we don’t see that much demand in India because companies have a lot of cash and interest rates are relatively high…Unless they are acquiring something, they don’t need to borrow. Borrowing at 3% is very different from borrowing at 7%,” Peter Guenthardt, head of Asia Pacific global corporate & investment banking at Bank of America, said in an interview.
Borrowing costs in the US have gone up sharply from March 2022 to July 2023 as the Federal Reserve raised interest rates by 525 basis points to tame runaway inflation in the country. Policy rates in the US are now in the region of 5.25-5.50% as against 0% during the pandemic. The veteran investment banker, however, said he expects a lot of activity in initial public offerings (IPOs) in India, especially in the next six months.
“I think the same is true for follow-ons because a lot of companies are trading at high multiples. If you are a long-term holder, maybe this is not a bad time to take some money off the table,” he said.
Guenthardt does not expect a change in the IPO pipeline notwithstanding the market volatility that was witnessed around the elections, in which the Bharatiya Janata Party unexpectedly failed to win a majority on its own while retaining power at the Centre.Saying that specific windows of market access would be dictated by macro-economic events, Guenthardt emphasised that Bank of America did not see a directional shift in either supply of IPO papers or demand from investors.He also expects activity in mergers and acquisitions – both inbound and outbound – to be healthy in India this year. Commenting on the difficult landscape for deal-making globally over the past couple of years, Guenthardt observed that the recovery in Asia had been slower, stating that while investment banking fees in the US were up 30% year-on-year, Asia was flat.”But a quarter ago, Asia was down about 15%. We are seeing some recovery and activity in Japan and Australia is largely driving that. In India, activity hasn’t been as robust, but the expectation is that now that the elections are out of the way, we will see a wave,” he said.
Expressing optimism about the opportunity here, Guenthardt said Bank of America was viewing India as a “decades-long” opportunity and that the country reminded him in many ways of China in 2004.
“Investors are most interested in anything that has a consumer angle on the thematic that a burgeoning middle class will drive domestic consumption. Valuations are elevated but when consumer spending is outpacing GDP, some of these elevated valuations can be justified,” he said.
“Historically, execution risk has been a factor in India but there are a number of consumer tech names that have people very excited.”
Guenthardt said while Indian customers were not historically known to pay high fees for investment banking, clients with global aspirations were moving towards the international fee structures.
Such a shift would ensure that the resource allocation to India and its coverage by the global investment banking community would move towards that seen in the rest of the world, he said.
“Early signs are encouraging from the perspective that we are seeing a new generation of entrepreneurs. Private equity is very active, venture capital is very active, and they understand that if you want world-class advice, it has to be a viable proposition for all,” he said.