Since I moved to India’s business capital Mumbai in late November, financiers have met me with an encouraging greeting: “You’ve arrived in India at a great time!”
With the subcontinent bouncing back from the economic fallout of the coronavirus pandemic, India’s bankers and brokers have valid reason to be upbeat. Last year was a stellar one for dealmakers — although they may have been unable to celebrate with the office parties of yore.
“After at least seven or eight years of famine, 2021 was a year of feasting,” remarks Saurabh Mukherjea, founder and chief investment officer of Indian fund manager Marcellus.
With India’s equity markets climbing, private equity investments topped a record $40bn in 2021, sharply higher than 2020’s $35bn. And a run of high-profile initial public offerings raised $15bn last year, up from $9.2bn in 2020.
Dozens of new billionaires were minted as India’s economy, devastated by harsh pandemic-related lockdowns, started to grow again. And Morgan Stanley says the consensus forecast for earnings growth for MSCI India index companies is 42 per cent for the year to March and 20 per cent next year.
“India is as good a story as you can get,” says Asit Bhatia, managing director for global corporate and investment banking at Bank of America. The bank was a lead bookrunner on India’s biggest ever dollar-denominated corporate debt issuance last week, a $4bn blockbuster fundraising by Mukesh Ambani’s Reliance Industries.
Mukherjea adds: “This is the sunniest economic outlook we’ve had for at least a decade.”
Last year’s run of tech IPOs, such as online beauty retailer Nykaa and food delivery app Zomato, was a good omen for 2022, according to Bhatia. He adds: “We have a pipeline of such companies that are looking to list over the next few months.”
With easy money flooding stock and debt markets, many companies had taken the opportunity to strengthen their balance sheets, or refinance to get cheaper debt. “Now, in my view, that stage is coming to an end and we see corporates and [financial institutions] looking to raise capital for growth and capex,” says Bhatia.
Sceptics, however, will point out that while Nykaa and Zomato did well, the blockbuster offering for digital payments firm Paytm disappointed, falling way below its flotation price.
And for all the markets’ optimism, it has not been entirely plain sailing. India’s economic “recovery has progressed in an uneven manner” so far, Shaktikanta Das, India’s central bank governor, admitted back in November. But, he argued, the country “has the potential to grow at a reasonably high pace” once the pandemic subsides, and the IMF projects that India’s will be one of the fastest growing major economies into 2022.
“The underbelly of the economy is weak due to Covid waves,” says a person working in the finance sector, but adds that India was “quite solid versus others”. The government last week announced its estimate of economic growth for the year to March 31: it is still among the world’s quickest, at 9.2 per cent, but a shade under the 9.5 per cent originally forecast.
There are potential problems ahead. When US interest rates rise, foreign fund managers may reallocate holdings to less risky markets, and the Reserve Bank of India will raise borrowing costs. Like the rest of the world, inflation has arrived here — rising prices are a headache for New Delhi, and India’s most vulnerable people can ill-afford to pay more for food.
Politics, too, may cast a shadow over markets. Last February, India’s finance minister laid out an ambitious divestment policy, including sales of state-owned banks and insurance companies. Yet so far, the government has only managed to sell state carrier Air India to the Tata Group.
With prime minister Narendra Modi forced to cave in to farmers and abandon proposed agricultural reforms, and crucial elections coming in India’s most populous state Uttar Pradesh, bankers and money managers will scrutinise New Delhi’s political will to forge ahead with reforms. If the ruling Bharatiya Janata party loses local elections in Uttar Pradesh, investors will have to contend with political uncertainty.
And while many bankers find plenty of reasons to be cheerful, others are sure the good times cannot last indefinitely. “I have no doubt that the stock market is a bubble,” says one market veteran. But, he adds: “I don’t think that’s an India story, that’s a global story.”