Expect a fund-raising rush in primary market

Expect a fund-raising rush in primary market
The Economic Times, May 19, 2009, Page 15

The market will remain firm but it doesn’t mean that index can go up everyday; it will be range-bound, and that’s good

One of India’s top investment bankers, Vallabh Bhansali, chairman of Enam Consultants is not one to write off today’s market reaction. The man who has seen several swings in the market over the last three decades says that the UPA government has a great opportunity to put the economy back on track. ET Now’s Ashwin J Punnen caught up with him.

What is your view on the euphoria in the markets today. Do you think that the markets have overreacted?

I think it’s an extraordinary moment in India’s history that the states like Kerala, UP, Bihar, Bengal have decided to change the course. (This has) not happened in the past 50-60 years. And also the fact that a lot of pundits were concerned about where our democracy is going. So I think it’s been very momentous. It’s difficult always to say that you know this is how the market should react. And that seems to have overreacted a little that you know almost without trading your indexes are up more than 2,000 points. To that extent yes, but I think it should not belittle the kind of development the Indian democracy has created. May there was a lot of short position in the market and they were caught very badly. That may have accentuated the euphoric reaction. I expect sanity to come back to the market in a day or two. I see in a 2-3 years time, the Sensex touching super levels which will be way beyond the 21,000 levels. Globally, the liquidity position has improved and I feel that allocation for India will surely go up. I don’t want to give a level for the Sensex but I feel that these levels are sustainable in the near term and we could see upsides from here.

What’s your medium term outlook for the market? Where is it heading to?

I think it’s optimistic and bullish. I think the market will remain good which doesn’t mean that index can go up everyday. It will fall into a range of some kind and that’s good. I think as long as the capital market is there to help companies to raise money, investors to make wise investments and I think we’ll have that kind of scenario.

What according to you should be the top priority for the new government. What policy initiative should they take to kickstart the economy?

I think the government should make use of this five year stability in governance to come up with a phase-wise plan, for the short-term, medium term and full term. And they should spell it out. When you have a populist mandate given to you, there are chances that you get carried away and take measures that are not good for the stability of the economy. In the short-term the government will have to continue with the fiscal stimulation measure to kick start the economy. Even from the capital market perspective, the geo-political agenda should be very important considering the issues in our neighbourhood. The government should take pro-active measures to tackle the issue. The government has a fantastic opportunity to do a lot for the economy and they should seize the opportunity and act.

Looking at the state of the market, will the government be able to push through a massive divestment programme. Will there be appetite for PSU stocks?

Definitely, there will be appetite for PSU stocks if the government carries out divestment in a systematic manner. Here you should not force the market, instead you should use the market. During the NDA government they had bunching of issues, that was bad. If they bring quality PSUs out in the market at realistic prices then they will be able to successfully divest stakes. Corporate governance is an issue in PSUs and the first thing they have to spell out before going out to sell PSU stake is the coprorate governance policy of public sector companies. Valuation is a key part when it comes to market, whether it is public or private. But government should also look at other revenue raising measures. They should look at rolling out new services where they could collect tax or revenues. For example licensing 3-G spectrum, using massive land bank of railways, ports etc.

What is your outlook on the primary market. Do you foresee a revival in the IPO market?

I see the primary market reviving in the near term. We will start seeing companies coming to the public market to raise money. And my guess is that there would a few IPOs hitting the market in next two months time. The market was in a limbo for the past 15 months and it has opened up. You have seen some large companies managing to raise through equity sales in the QIP market. What is heartening is that promoters have become more realistic and practical. I see this as a sign of maturity of Indian promoters.

What about FCCBs that are coming for redemption. Will there be defaults?

With rupee strengthening and the stocks prices rallying FCCB issuers should feel comfortable. I don’t think there will be major problems there. The rupee has touched 48 and it may even go up further. I feel if that happens then the FCCB market itself will revive. If the stocks prices rise, then you would see more conversions.