India is a prime spot for all bulge bracket PEs, says Bank of America's Debasish Purohit

• In an interview with Malini Bhupta, Debasish Purohit, co-head, India Investment Banking, Bank of America, says financial sponsors are sitting on a lot of dry powder and willing to deploy capital.
  
• Good businesses will find investor interest irrespective of sector orientation, says Purohit.
  
• ‘Public market corrections haven’t yet reflected in the private market yet.’

Ever since the Federal Reserve kickstarted it's rate hike cycle earlier this year, financial markets have gone into a tailspin. While foreign portfolio investors sold Indian equities heavily till June, a funding winter seems to have set in for private markets too. There’s no doubt that the era of easy money is over, but good businesses will still find takers. In an interview with Malini Bhupta, Debasish Purohit, co-head, India Investment Banking, Bank of America, says bulge bracket private equity players are flush with cash and will look at deals. Edited Excerpts:

Is there a funding winter for start-ups after a record 2021, which saw large capital flows at sky high valuations?

Return thresholds have gone up as capital turned costlier and currencies depreciated. Investors also demand higher margin of safety for execution risk and longer path to profitability as the case may be. On the positive side, financial sponsors are sitting on a lot of dry powder and willing to deploy capital. Public market corrections haven’t yet reflected in the private market yet. It’s inevitable that we would see some down rounds in certain pockets – either in multiples or in relation to the last absolute value.

What do you mean by the colour of money is changing?

If last year private markets were a broad mélange of investors across all spectrums, this year we see more traditional and longer term money come to private space. We are also seeing pockets of interest among Sovereign Wealth Funds (SWFs) and large family offices.

What kind of companies will see down rounds?

It is hard to generalize but companies in the top quartile or two will be reasonably fine. A lot of companies, let us not forget, have raised a lot of capital in the last few years and are sitting on cash. They can tune down growth aspirations, preserve cash and stick to the core and focus on profitability. And we are already seeing that discipline play out.

The secondary market has really picked up in the last few weeks with big exits by institutions. Can you explain how large stakes of existing institutional investors have been lapped up?

Last year was a much easier market to put deals together. This year, one had to earn one’s stripes. We have had almost $30bn flow out of Indian markets. As a market participant, you get a sense of when things turn. Portfolio investors are paid to deploy capital and not sit on cash. We saw signs of life come back in July with flows turning net positive. The Zomato block, which we sole led, was the first sizeable secondary trade to test out the strength of the market. It was the first major equity transaction to be led by foreign investors and in hindsight gave confidence to the market about opening of a window. We saw a flurry of (equity capital markets) ECM activities in the subsequent two weeks. It was a reversal waiting to happen, the key is to be alive to market turns and structure transactions well.

Is there a preference that global investors have in terms of sectors?

There will be shorter-term sector rotations. But fundamentally speaking, good businesses will find investor interest irrespective of sector orientation. Having led four transactions within a week, across sectors, we can certainly vouch for that. Markets are usually opened up by top and liquid names. As the market gains confidence, longer lead products like IPOs follow in quick order.

What about private markets?

The PE infusion worth $1.1 billion into Yes Bank is a great sign of a thriving private market. India is a prime spot for all bulge bracket PEs and valuations, on a growth adjusted basis.

What is the role of M&A in corporate India now that deleveraging of balance sheets has happened?

Mergers and acquisitions will continue to be a very strategic tool for corporate India. M&A will be as much corporate led as it will be sponsor led. Inbound activities have largely centered around renewables. Next leg of inbound capital will be driven around manufacturing and energy transition. India’s massive emphasis on “Make in India”, energy security, asset monetization will drive inbound M&A thematics going forward. We expect IT services and healthcare to be very active too.

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