Capital-raising via mainboard initial public offers have hit a nine-year high at ₹5,728 crore in FY17 so far, according to Prime Database, and many good companies have witnessed massive oversubscription. Anup Bagchi, MD & CEO of ICICI Securities, which jumped to number one position in the IPO segment in July this year, believes that Indian primary market has the potential to absorb many more large IPOs considering the inflows into equity mutual funds. Excerpts:
Do you think investment bankers, including ICICI Securities, failed in a large issue such as L&T Infotech?
In case of L&T Infotech, there were two to three information technology results which were disappointing in the time period during which the company raised money from the primary market and got listed. I don’t believe that the listing price should determine whole of the company. It is not that if the listing is good then the company is good and vice versa. One should see returns over a period of time.
I would not say sectoral preference but would say it is characteristics of companies. Companies from sectors having high headroom, companies which are able to capture high growth opportunity, companies which have decent barrier to entry (those which do not have many comparables) or companies which have low leverage are doing better than others. I don’t think at this point in time there is such a frenzy where every company can raise capital.
What is the most important parameter for you while valuing a company — sector, business or management?
Financial performance is just a report card of the past.
The past can give you guidance but not 100 per cent. Equity is all about future. Investors are betting on sector, company and most importantly, the management.
What do you attribute the reason for being numero uno in IPOs? Is fee a big parameter in bagging an IPO project?
You cannot become number one only on the basis of fees while getting IPO business. The IPO of a company is a once-in-a-lifetime event. If you think from a client’s perspective, will you give it to the lowest bidder? It is like going for a critical surgery. Would you necessarily look for a cheaper doctor? No.
The first need is to go to a good doctor and within that, of course, it is competitive pricing. So, we have to be competitive but the basic threshold is that you have to be a good banker. We should be able to sell the issue and investors should be able to make money over a period of time.
Do you think India is ready for large IPOs?
The mutual fund industry is getting inflows of almost ₹36,000 crore annually via systematic investment plans. Plus, there are lump-sum investments.
This is supply of money. But in terms of demand, ₹36,000 crore of IPO or capital-raising has not happened. We should have many companies going public. Given the size of our economy, 8-12 IPOs a year is really very small. We are not even raising $2 billion through IPOs. I think, India is ready for larger issuances because ₹6,000-7,000 crore per issue is not a very big money. Issues are getting subscribed 10-12 times. Availability or supply of money is not an issue.
How is ICICI Direct.com doing in fiercely growing competition, especially from discount brokerages?
ICICI Direct.com is a market leader by miles. Our market share is only increasing. Discount brokerage is a myth. Nobody shifts for small amounts whether it is derivative markets or cash segment. The cheapest business is never the largest business anywhere in the world. We also have a pricing plan, including zero brokerage, depending on the kind of customer.