Promoters are now more open to the idea of exiting businesses, says Nomura India’s Utpal Oza

In an interaction with Mint, Utpal Oza, managing director and head (investment banking) at Nomura India, reveals what could drive mergers and acquisitions, and private equity investments in 2019.

What will drive M&A in 2019?

The IBC process and regulations have been evolving. In the initial phase, we had witnessed large insolvency cases, amid a lot of regulatory changes and judicial intervention/rulings. The successful resolution of large insolvency cases under IBC will provide clarity on regulations and boost confidence of domestic and foreign investors for future bankruptcy processes. IBC is likely to drive M&A deal activity in 2019 as well. We feel that there will be continued domestic consolidation in the financial, consumer and healthcare sectors. Technology companies, fintech and internet companies will continue to need capital to grow and, as they achieve scale and size, they will drive inbound M&A. Given that the primary markets are expected to remain relatively muted in the first half of 2019 due to the uncertainties around the elections, corporates looking to raise growth capital will get oriented towards private equity. We expect the next 12 months to be busy for PE firms.

In the past, we have always heard that the M&A market in India is not deep enough. Do we see that changing?

A subtle change is being seen. The promoters are now more open to the idea of exiting businesses, besides divesting stake to fund growth or reduce leverage. Additionally, both large corporates and start-ups have become increasingly open to evaluating fund-raise from financial investors and foreign strategic players, and this has reflected in increased M&A activity. Sovereign wealth funds and pension funds are increasing activity in India, and are emerging as a reliable source of patient, long-term capital for Indian companies. Further, some of the new-age economy companies are becoming large in value and driving private fund raising activity and deal volumes. Indian companies will remain cautious and selective on outbound M&A, except in the auto component and healthcare sectors. The robust responses to recent M&A processes point to increasing activity and appetite.

We have seen a bunch of pensions and sovereigns invest heavily in India over the last few years. Do you see more of such investors queueing up to invest in India?

Yes, absolutely. In line with global investors, pension funds also recognize the growth story of India and several long term investment opportunities. Over last few years, we have witnessed some large investments in India from global pension funds which are likely to continue given the macro-economic activity and attractive domestic consumption trends in India compared to other emerging markets. We expect that pension and sovereign funds will have an edge over conventional PE funds in the infrastructure and asset heavy sectors which are typically associated with longer investment horizons.

What are plans for 2019? Which product do you think will generate more business in 2019?

India is a key focus market for Nomura, and clients recognize us for the strong capabilities, deep commitment to the market and unique market positioning. We have been consistently ramping up our team size and will look to add headcount both on the sector coverage and the debt side. We are optimistic on corporate earnings growth and funding activity over the coming years. Equity capital market transactions will be dependent on favourable market conditions but we definitely see increased M&A activity with both domestic consolidation and inbound transactions. 2019 should see a fairly balanced performance across most product categories.

In the past, we have always heard that the M&A market in India is not deep enough. Do we see that changing?

A subtle change is being seen. The promoters are now more open to the idea of exiting businesses, besides divesting stake to fund growth or reduce leverage. Additionally, both large corporates and start-ups have become increasingly open to evaluating fund-raise from financial investors and foreign strategic players, and this has reflected in increased M&A activity. Sovereign wealth funds and pension funds are increasing activity in India, and are emerging as a reliable source of patient, long-term capital for Indian companies. Further, some of the new-age economy companies are becoming large in value and driving private fund raising activity and deal volumes. Indian companies will remain cautious and selective on outbound M&A, except in the auto component and healthcare sectors. The robust responses to recent M&A processes point to increasing activity and appetite.

We have seen a bunch of pensions and sovereigns invest heavily in India over the last few years. Do you see more of such investors queueing up to invest in India?

Yes, absolutely. In line with global investors, pension funds also recognize the growth story of India and several long term investment opportunities. Over last few years, we have witnessed some large investments in India from global pension funds which are likely to continue given the macro-economic activity and attractive domestic consumption trends in India compared to other emerging markets. We expect that pension and sovereign funds will have an edge over conventional PE funds in the infrastructure and asset heavy sectors which are typically associated with longer investment horizons.

What are plans for 2019? Which product do you think will generate more business in 2019?

India is a key focus market for Nomura, and clients recognize us for the strong capabilities, deep commitment to the market and unique market positioning. We have been consistently ramping up our team size and will look to add headcount both on the sector coverage and the debt side. We are optimistic on corporate earnings growth and funding activity over the coming years. Equity capital market transactions will be dependent on favourable market conditions but we definitely see increased M&A activity with both domestic consolidation and inbound transactions. 2019 should see a fairly balanced performance across most product categories.