IFLR India Capital Markets Forum 2019


January 16, Four Seasons Mumbai


Key Takeaways


India Capital Markets 2019 Key Takeaways

In case you didn’t make it to our eighth India Capital Markets Forum yesterday, here are all the highlights


Securities market in India: an overview

  • From a law-making perspective, the year has been busy with strong domestic flows supporting both primary and secondary markets;
  • A softer market has brought interesting activity, from listings from new business and real estate companies;
  • Key recommendations of discussions papers have demonstrated the willingness of the regulator to be market-savvy;
  • Looking at an inclusive market is not enough, there should be a framework that enables external issuers to come in and domestic issuers to leave. This will increase the quality and competitiveness of capital markets in India;
  • There has been too much focus on ‘reinventing’. International laws can be trusted and provide an opportunity to get guidance from their laws;
  • Regulators are beginning the steps for changes in regulation in small increments, focusing on the most important. It is a game-changer looking at the big picture, but unrealistic to have all steps implemented at the same time;
  • Domestic liquidity is prominent – many foresee companies staying in the domestic market/India;
  • The second crop of interested companies is comprised of large retail companies in India. In addition to tech, large FMCG/retail companies will come in to look at India markets. This is a great opportunity as it will help Indian companies raise capital;
  • India is currently in an interesting phase. Growth is slow globally but domestically still there, with lots of capital raising.

Primary markets in 2018: review of the deal flow, challenges and opportunities

  • Equity-wise, the SME segment saw an increase, while in the listed space it dropped in 2018;
  • Domestic institutions were still active in the year despite global turbulence;
  • Promotor-less IPOs? Looking ahead we can see if IPOs would work without promoters. It would be a huge change and challenging, but something to think about;
  • Confidence in the domestic credit rating is low. This is not necessarily due to regulations; credit agencies need to work on it as well;
  • Activity in 2019 will be the opposite of 2018. In the first half of 2019, it will be subdued, while the second half will be more buoyant;
  • Activity will be in sectors that are favoured for FII’s, as well as specific assets with stability;
  • Another thing to be aware of is delisting, the other half of the equation for IPOs. Panellists would like to see regulators making it easier to delist.


An update on Reits and InvITs

  • Reits and InvITs activity has stalled in India, but all can be hopeful and positive on the InvITs side for the coming year;
  • Rising interest rates are good for business trust products;
  • Despite global events causing uncertainty, Reits historically outperform other assets as they are viewed as a stable and high-quality investment product;
  • Regulations is not as heavily policed for Reits and InvITs – investors come in and compare the corporate governance from other jurisdictions to make the decision;
  • On disclosure for the independent characters for the trustee, there is no need to disclose independent directors, and this can cause huge conflict;
  • India has mainly managed Reits internally  – would people want them to start externally managing them? Sebi would make sure that the external manager is aligned with internal shareholders;
  • The real estate market has been dead over the past year. The government talks about infrastructure needs but is unable to raise enough money and come up with assets that PE/public shareholders are interested in;
  • For Reits it is a growing learning curve. Sebi needs to understand if it is doing a favour to investors or not.


The international bond markets in 2019

  • The International Securities Markets from the London Stock Exchange was launched to create a more efficient way to list, as it is exchange-regulated;
  • On the global growth side, there is a concern that China’s depreciation will affect emerging markets;
  • However, there is optimism on the dollar side. Issuers are likely to stay in the market with repeat issuances;
  • Masala bonds were extremely hot for a while, it’s not clear where they went. A competitor to the FPI route? Except the extra limb where masala bond needs an RBA;
  • Green bonds are here to stay; volume will increase further.


Foreign Portfolio Investor Regime

  • India’s growth is impressive, while there is stress on emerging markets overall. For example, China is increasingly struggling to attract foreigner investors;
  • No global player can ignore India. There is a belief that elections will not have a negative impact on FPIs;
  • Engagement of the FPI with RBI/Sebi has increased. It is now a two-way process where regulators are listening to each other;
  • Challenges of the developments – reforms are guided by one size fits all. There should be a mix of approaches, aiming to get a balance so it is both business and investor friendly;
  • The FPI regime’s initial impact was chaos. There was a force to deal with the subject, even though there was no guidance. The confusion between April and December’s circulations could have been avoided with a proper consultation;
  • The RBI wants to attract stable long-term investors, however, “trapping” the money in India is not the way forward and there is a need to attract foreign investors in a fair way;
  • Data reporting requirements are also something to look out for. FPIs’ listed entities behind them have their own home country laws. It is important to create harmonious reporting for the two jurisdictions. Refining has been happening, working towards data protection;


Conducting due dilligence

  • The basic concept is the golden rule – prospectors to write documents based on the four pillars: true, fair, full and accurate;
  • Intangible assets have become more prominent, and it is a challenge to interpret these assets;
  • Disclosure or verification can be seen as too detailed, especially for information that cannot be easily verified – for example a quote from the CEO. Sebi’s need to be descriptive may hinder the larger picture;
  • Promotor group identification – peculiar to India, promotor group concept is completely foreign, and becomes challenging in terms of verifying family inclusion;
  • Being limited to an international offering risks short-changing the Indian investor for quality of disclosure and level of diligence;
  • Big companies do not have promotors. Sebi had deep-rooted thoughts on promotors, but it is great to see it is starting to change this;
  • Labour law issues in cross-border transactions have also been prominent recently.

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