As the country emerges from the clutches of Covid-19, the momentum in the markets is expected to pick up with companies queuing up to raise funds. The M&A sector will also become active, while stressed assets will witness heightened interest from financial and strategic investors, according to Atul Mehra, Managing Director and Co-CEO, Investment Banking, at JM Financial. In an interview to BusinessLine, Mehra says manufacturing, consumer, pharmaceuticals and healthcare, among other sectors, will rebound fast. Excerpts:

Of late, investment banking activity has been registering a recovery. Will the sector maintain this pace?

Given the uncertainty due to the pandemic, we were highly sceptical in April. However, capital markets activity touched historical highs in the first half of FY21. Since May, 42 corporates have raised ₹1.40-lakh crore.

Private Equity investors have also backed Indian corporates with large pools of committed capital, with PE investments of ₹1.50-lakh crore during the first half. M&A also witnessed decent growth in H1 FY21, with total value of M&A deals of ₹3.46-lakh crore.

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Going forward, we expect the momentum to continue in public markets as many more corporates plan to tap the markets to meet their fund-raising requirements. We hope this year to be a bumper year from the point of view of equity capital market fund-raising. On the M&A front, there could be consolidation in certain sectors, corporate restructuring and divestments of non-core assets.

Which are the sectors that will emerge as sweet spots for M&A?

In the first nine months of calendar year 2020, financial services, consumer and IT were among the top sectors. We believe that a similar trend is likely to continue in FY21. Social distancing norms and travel restrictions have further strengthened interest in the healthcare, pharmaceuticals and digital and e-commerce businesses. Sale of stressed assets is another sweet spot, where we expect huge interest from financial and strategic investors.

Does the change in foreign direct investment policy and measures to curb Chinese investments impact Indian firms?

More than half of India’s 30 unicorns have investments from Chinese investors and, going forward, this will lead to a higher level of scrutiny on such investments, which could impact follow-up funding for these unicorns. For now, we expect the US and Japanese investments to rise in the country due to their geopolitical tensions with China.

The US is seeking to move supply chains out of China and also is convincing its allies to do the same. Additionally, investments from Japan will also increase owing to the inclusion of India as a country eligible for subsidies into that country’s programme to incentivise businesses to exit China.

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The Indian stock market has shown a broad-based recovery with fresh supply of IPOs and retail participation? Your views.

We are of the view that retail participation is critical for the long-term growth of capital markets. Retail investors are the backbone of Indian capital markets, especially during uncertain and volatile conditions where they act as the cushion, providing both liquidity and resilience to the markets.

We have seen record high demat account additions during these times. In the six months ended September 30, there have been 5.7 million incremental demat accounts. The steep recovery in financial markets has continued to attract many new investors.

While larger listed firms could raise capital through rights issue, QIPs, FPOs and also from debt market, how will mid- and small-sized firms raise funds?

Several large listed firms have tapped the equity capital markets since the pandemic outbreak. Out of 42 corporates that raised ₹1.40 lakh crore, 18 issuers who raised ₹1.22 lakh crore are large-cap firms, while 24 issuers who raised ₹17,500 crore are mid- to small-cap firms.

We believe stock markets and investors will be quite receptive to corporates which offer cash flows visibility, strong and resilient business model with a demonstrated track record of overcoming obstacles and sound corporate governance, irrespective of their size. The recent success of IPOs by smaller companies shows that they are favoured for their promising growth and realistic valuation expectations.

After the pandemic, which are the sectors that would rebound fast?

We expect a gradual recovery of the economy in 2021. Manufacturing activity has also picked up significantly in India. The sectors that have prospered during the pandemic are those where demand is agnostic such as consumer, pharmaceuticals and healthcare. Export-led sectors like IT, chemicals, will continue to deliver superior returns over the next few quarters as well. Moreover, due to the growth in the rural economy and bumper Rabi harvest, we expect agri and farm-based companies to perform well.

How is JM Financial’s IB activity pipeline?

JM Financial has worked on 29 capital market and M&A transactions in the current calendar year worth over ₹1.5-lakh crore. Some of our recent capital market transactions include the ₹53,000-crore rights issue of Reliance Industries, delisting of equity shares of Hexaware Technologies, amongst others. We continue to work on a strong pipeline of transactions across sectors, including IPOs.

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