Mon. Jan 24th, 2022


Since I moved to India’s business capital Mumbai at the end of November, financiers have greeted me with an encouraging greeting: “You have arrived in India at a wonderful time!”

With the subcontinent bouncing back from the economic consequences of the coronavirus pandemic, India’s bankers and brokers have valid reason to be optimistic. Last year was a wonderful one for transaction makers – although they may not have been able to celebrate with the office parties of yesteryear.

“After at least seven or eight years of famine, 2021 was a year of feasting,” says Saurabh Mukherjea, founder and chief investment officer of Indian fund manager Marcellus.

With India’s stock markets on the rise, private equity investments reached a record $ 40 billion in 2021, sharply higher than 2020’s $ 35 billion. And a series of high-profile initial public offerings raised $ 15 billion last year, up from $ 9.2 billion in 2020.

Dozens of new billionaires were minted when India’s economy, devastated by severe pandemic-related restrictions, began to grow again. And Morgan Stanley says the consensus forecast for earnings growth for MSCI India index companies is 42 percent for the year to March and 20 percent next year.

“India is as good a story as you can get,” says Asit Bhatia, Managing Director of Global Corporate and Investment Banking at Bank of America. The bank was last week a forerunner of India’s largest ever-denominated corporate debt issue of India, a $ 4 billion fundraiser by Mukesh Ambani’s Reliance Industries.

Mukherjea adds: “This is the sunniest economic outlook we have had for at least a decade.”

Last few years run of technological IPOs, such as online beauty retailer Nykaa and food delivery app Zomato, was a good sign for 2022, according to Bhatia. He adds: “We have a pipeline of such companies that want to list over the next few months.”

With easy money flooding stock and debt markets, many companies have taken the opportunity to strengthen their balance sheets, or refinance to get cheaper debt. “Now, in my opinion, that stage is coming to an end and we are seeing corporate and [financial institutions] looking for capital for growth and capital, ”says Bhatia.

Skeptics will point out, however, that while Nykaa and Zomato did well, the box office offer for digital payment firm Paytm disappointed, which falls far below its flotation price.

And for all the markets’ optimism, it was not entirely self-evident. India’s economic “recovery has so far progressed unevenly”, Shaktikanta Das, India’s central bank governor, acknowledge back in November. But, he argued, the country “has the potential to grow at a fairly high pace” once the pandemic subsides, and the IMF projects that India will be one of the fastest growing major economies in 2022.

“The bottom of the economy is weak due to Covid waves,” says a person working in the financial sector, adding that India was “fairly solid against others”. The government last week announced its estimate of economic growth for the year to March 31: it is still among the fastest in the world, at 9.2 percent, but a shadow below the 9.5 percent originally predicted.

There are potential problems ahead. When US interest rates rise, foreign fund managers can reallocate holdings to less risky markets, and the Reserve Bank of India will increase 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 afford to pay more for food.

Politics can also cast a shadow over markets. Last February, India’s Minister of Finance explained an ambitious rejection policy, including sales of state-owned banks and insurance companies. Yet the government has so far only succeeded sell state-owned company Air India to the Tata group.

With Prime Minister Narendra Modi forced to cave farmers and abandon proposed agricultural reforms, and crucial elections coming in India’s most populous state Uttar Pradesh, bankers and money managers will examine New Delhi’s political will to continue with reforms. If the ruling Bharatiya Janata party loses local elections in Uttar Pradesh, investors will face political uncertainty.

And while many bankers find many reasons to be cheerful, others are sure that the good times may not last forever. “I have no doubt that the stock market is a bubble,” says one market veteran. But, he adds, “I do not think it’s an India story, it’s a global story.”

chloe.cornish@ft.com



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