Subhrajit Roy, Head, India Global Capital Markets, Bank of America, explains in an interview to businessline how the current trend of block deals in the equity market can deepen private equity participation in India. Edited excerpts: 


Promoters and private equity players have made the best of the recent market rallies. Do you see this as a sign of maturing equity markets and will it continue for a while?

Sustained flows from investors, both domestic and foreign, in the recent past is proof that India is an attractive place for investments. This has made India more resilient vis-à-vis global markets. If there is consistent demand for quality paper, and the only way to get that in one go would be through market transactions, then, naturally, block deals become the optimal way.

Also, wherever sponsors have been selling, it is well understood that they are financial investors who will look to exit at a point of time, and this maturity has mitigated the stock overhang, which used to be a concern in the past. 

There were times when tranched monetisation was not appreciated, as that often created a sustained overhang. But now, markets realise that if the underlying stock/ company is doing well, every block trade is an opportunity to accumulate. This maturity gives private equity sponsors the confidence to take bigger stakes in companies, knowing they can exit over time. 


Does it also mean market participants are able to distinguish a company and its management from the promoters?

Absolutely. And these are still early days of that trend. In any other developed market like the US, we’ll see a lot of high free float in professionally run companies, irrespective of the promoter shareholding. We see many instances where the CEO becomes a face that investors are comfortable with, and the focus is less on the promoters. In fact, you will typically find the CFO being a market veteran. We’re probably 5–7 years from this scenario.


How do you see the IPO market shaping up this year?

The Indian IPO market was one of the bright spots globally in 2023 and we expect this to strengthen. We expect the average IPO size to be bigger and a diversified IPO calendar across sectors led by technology, healthcare and financial institution group (FIG). At the same time, we expect block trade volumes to remain robust.

Every quarter one can expect around $3 billion-plus block trades, and even more in a good quarter, across sectors, market caps and types of sellers. As long as the Indian market remains attractive, block trade volumes will remain strong. 

One can always say that valuations appear rich compared to history and compared to other markets, but finally the demand-supply dynamics would determine the clearing price for deals. If there’s enough demand chasing quality paper at a reasonable price, there will be deals. 


A lot of the demand is domestically driven...

In my view, the demand is quite balanced, with foreign investors also wanting to participate in the ‘India rising’ story. There is consistent FII [foreign institutional investors] demand over the last six months, and most sizeable deals have equal participation from large FIIs. FII flows picked up momentum in Q4 CY23 with improving global risk appetite and a strong Indian macro.


Mid- and small-caps have not been viewed favourably in recent times. Will the IPO market be matured enough to disregard some of these warning signals?

Yes, I think so. Most of the main-board IPOs have done well. The average IPO size was around $100 million last year; a few were larger. 

Notwithstanding the current noise around small- and mid-cap — there may have been some exuberance in that space given the money chasing these stocks — each IPO gets evaluated in its own right. Interestingly, none of the IPOs have been priced aggressively. There have been no claims that the pricing of IPOs is unreasonable and investors have lost money. That is important because, as investors make money on these IPOs, they would feel confident about the next IPO. 


Do you see the big bang IPO towards the latter half of 2024?

Yes, with many of them expected to come in 2025. We expect a busy period post monsoon this year. Starting from the fourth quarter, we’ll keep building scale going forward. There could be some periods of inactivity around the India/ US elections, but, in general, people are feeling comfortable.