International Business'Home-grown PE businesses will do well'
Vandana / Mumbai December 2, 2009, 1:24 IST
India Inc can take advantage of the PE (price to earnings) multiple arbitrage as global multiples are not as high as the India’s, says Tarun Kataria, managing director and head of global banking and markets, HSBC. HSBC has been associated with some large equity issuances recently, including Oil India’s public issue and Hindalco’s qualified institutional placement. In an interview with Vandana, Kataria says that with financing no more an issue for corporate India, the stage is set for the next round of cross-border activity. Excerpts:
We are often on road with Indian companies visiting institutional investors at major financial centres. Foreign institutional investors (FIIs) remain bullish on India to a point where we don"t have to sell the Indian story any more. They understand the compelling demographics, the quality of governance and transparency, high savings rate, entrepreneurial zeal and the best-in-class management quality. So, you have strong fundamentals, backed by the emerging markets cache coupled with global liquidity, which makes for a heady mix. Frankly, I can"t think of a more compelling investment destination. PSUs are interesting for a couple of reasons. They present growth opportunity while providing the upside of transition from government to public ownership and tend to offer large liquid trading opportunities. They are also in interesting sectors such as oil & gas, mining & metals, and infrastructure.
Other sectors of interest are the “emerging India” sectors such as fast moving consumer good, banks and insurance.
How are things unfolding on the private equity side?
Private equity is an interesting business, which I"m not convinced any of us has got right yet. The ideal time to have invested was some months ago when valuations were more sensible and alternative sources of capital were not available. Yet none of us used this window. At today’s valuations, it takes some doing to convince an investment committee sitting in London or New York that an investment makes sense. And here"s why. India Inc trades at 17x forward earnings. A peer group company in the investment committee’s home market probably trades at a discount to that. It can be a tough leap to make. Which is why I believe home-grown PE businesses can and will do well.
So, will $24 billion of private equity money sitting on the sidelines ever get put to work? Probably not in a hurry.
There is this talk about 25 per cent public shareholding. Sebi is also talking about cutting the IPO timeline. How do you see these developments?
Increasing public float is never a bad idea. One, it"s good for liquidity and trading volumes, and two, it provides much better price discovery than an issuer with a minimal float. I would view what Sebi is doing as positive for equity markets. The same should apply to the PSU divestment process. This, of course, has the added benefit of replenishing the Centre"s coffers, which is not a bad thing. When it comes to reducing the timeline for public issues, anything that brings transactions to markets quicker is welcome. This would apply equally to the filing and response time and the allocation of stock to investors.