Mumbai The ongoing resurgence in India’s stock markets and withdrawal of foreign investors has raised hopes of more primary market fundraising this year, especially through initial public offerings (IPOs). In an interview, Debashish Purohit, Co-Head of India Investment Banking at Bank of America, spoke about the outlook for IPOs and Qualified Institutional Placements (QIPs), the impact of the recent public market reform on private market fundraising and the bank’s focus on ESG. spoke about. Subjects, especially renewables. Edited excerpt:
Will the current secondary market rally open up IPO, QIP fundraising opportunities for companies or is investor sentiment still weak?
There are signs of life coming back after a gap of about three months. After printing four trades in a week, we certainly feel very excited by the reversal in fund flow, return of FPIs in equity transactions and battle for market stability. Like any capital raising cycle, it is quick-to-market trades such as blocks and QIPs that are executed first, followed by longer-term products such as IPOs. While secondary exits will continue, the QIP opportunity will be a function of primary growth by listed companies. While we feel very confident about the IPO markets coming back later this year, we have to be patient and be tactical around market windows.
Given the current challenges for tech companies to tap the capital market and the valuation reforms expected in private markets, what is the outlook for tech fundraising?
We have not yet seen public market reforms in private markets, partly helped by the abundance of capital available in the private sector. In addition, many large private tech companies are sitting on a comfortable capital cushion and showing admirable discipline on capital outlay and willing to restructure growth plans while conserving capital. We will see rounds in some areas but the extent of this will be driven by the weakness of the current market and the ability of the companies to ride the reversal momentum in the market. It would be quite natural to see restructuring and consolidation along the way.
How important is the renewables sector to you given the focus on ESG?
We, as a bank, champion ESG and have taken a leadership position in this segment. Renewable energy is at the heart of ESG-themed investments. This is even more relevant for India, as 80% of today’s electricity generation is dependent on fossil fuels. Our national ambition of 50% renewable energy by 2030 requires massive investments of over $230 billion. We expect the sector to have significant institutional and FDI inflows to meet the financial demand in the capital structure. We are the market leader in Indian Renewable Energy with around 70% M&A market share. We also took India’s largest renewable energy company public in the US last year.
Will the deal momentum in renewable energy continue for the rest of the year?
Absolutely. With the Russo-Ukraine war, the energy transition theme is now merging with energy security goals as countries realize they need to diversify away from fossil fuels. Despite the macro headwinds, the ESG focus is only growing further and we see panning out in the process we are running now. Several large infra/ESG focused funds have raised massive funds to help with post-pandemic liquidity and are looking to deploy aggressively. Strategic interests, on the other hand, are driven by broader corporate goals towards the energy transition. One specific pocket we see is the old world energy and resource big companies getting increasingly aggressive. We have seen companies like Shell and Thailand’s PTT bet big on the Indian renewable market and we continue to get more and more inbound.
Why is the renewable sector absent from the capital market? Is it not a matter of concern that domestic investors do not have access to one of the most exciting sectors of the Indian economy?
this is true. There hasn’t been a single Pure Play Renewable IPO in India. This has a lot to do with the fact that Indian markets and investors are yet to see the renewable sector as separate from traditional utilities, where public investors have had a nostalgic experience in the past. On the other hand, ESG as an investment subject is again not fully understood in India. We are yet to see domestic pools of ESG capital. However, things are changing. Many traditional utility companies now have largely renewable portfolios and investors are appreciating this change. The ESG topic is slowly gaining traction in the public domain. SEBI had recently proposed a framework for ESG rating, which is likely to help in this regard.
How big is the energy transition opportunity?
As I mentioned, renewable energy requires an investment of $230 billion. The broader energy transition includes topics such as green hydrogen ($100bn), storage ($250bn), and e-mobility ($150bn), among other topics, which together require additional capital of $500 billion. Disinvestment of assets is one of the strategies that may become popular as companies seek to free up capital. We do not think this will negatively impact the ESG score as the majority of this capital will be reinvested in new capabilities.
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