This Month we have Mr. Shankar Iyer, our Taxation & Transaction Services expert, who comes with over 3 decades of experience in the Taxation & Transaction Advisory services sector. Mr. Shankar Iyer, is the Head of Direct Tax & Transaction Services for DAA Consulting.

Q. This year has seen record momentum in Investment Banking activities, particularly in Fundraising and M&A. What are the reasons for such robust growth this year?

Response: The current economic scenario can be dichotomized into pre-covid and post covid attributes. The pre-covid economy was laden with relatively sluggish economic growth, unique global markets functioning on a set pattern and domestic policy challenges. Covid-19 has not only exacerbated, amplified and acted as a force multiplier for various existing economic problems in a developing country like India but also presented a whole host of additional challenges such as strained and shifting global supply chains, impact on India's export market and shortages in core materials. Nevertheless, as a boon-in-curse paradox, the post Covid-19 scenario did have a silver lining, presenting new opportunities in India such as logistics reaching new highs on e-commerce platforms, Indian digital payments recording penultimate peaks globally, rigorous realignment in supply chain and logistics, renewed auto-demand, spike in innovative and tech-oriented startups, fresh IPOs for payment solutions players, increasing focus on metals industry to foster self-reliance, relative uptick in defence manufacturing, streamlining corporate structures, global realignment being more favourable to facilitate fund flows into India as a potential 'bright spot' etc., to list a few. These also explain traction in the Indian corporate sector e.g. RIL's equity expansion with multiple foreign partners during 2020-21, major acquisitions for backward integration as well as new venture listings, such as listing of Nuvoco Vistas (noted cement player) , Paras Defence IPO, Exxaro Tiles Limited IPO, Windlas Biotech Limited IPO, Devyani International Limited IPO, Krsnaa Diagnostics Limited IPO, Tatva Chintan Pharma IPO, etc. With policy initiatives by the government finding favour with and providing a conducive environment for Indian companies as well as foreign players (such as reduction of tax rates pre covid, suitable performance linked initiatives to promote domestic manufacturing, disinvestment, infrastructure projects, etc.), it is no surprise to see a spiked trend in economic activities resulting in robust growth in the near future, relative to 2019.

Q: With the Success of Zomato's IPO and several other notable startups lining up to get listed, the Indian IPO market has been left in a frenzy. What factors seem to be contributing to this meteoric rise in IPOs this year?

Response: Markets, especially stock markets function on a forward point principle. The reason for the rise in IPOs needs to be understood as a continuum i.e. (a) how many IPOs were already lined up pre-covid that could not take off during covid and are now able to launch themselves and (b) how many are fresh IPOs that are being launched post-covid. With this, we can clearly analyse the IPOs, such as, PayTM that were already contemplating an IPO in 2019 but could not take it forward at the time, possibly due to various challenges in pre-covid times as listed above, resulting in potentially lesser attractive valuations. But given the surge in digital payments during the Covid-19 period, PayTM’s value and relevance has multiplied manifold and after securing the necessary regulatory approval, it will be launching its IPO soon. E-delivery/E-commerce platform Zomato has also seen the light essentially only in the post covid scenario due to the potential burgeoning of business opportunities and expansion during covid times, (e.g. home delivery of packaged foods, household essentials, etc.) which may have increased future business prospects in the eyes of investors, which has in turn effectively translated into keener interest and commitment in Zomato’s IPO and therefore attractive valuations as well - based on forward point multiple.

Q: How has the Investment banking Ecosystem developed over the years in India? Give us your valuable opinion on the same.

Response: Typically, in India, the Investment Banking (IB) community has been a close-knit group primarily concentrated in the two main metropolitan cities i.e. Mumbai and Delhi. Over the last decade or so we have observed certain degree of democratization in IB - first with the development of Chennai as a hub for various IB deals in healthcare and in the automotive and industrial components space in the last 10 years, second with tier II and tier III cities developing and presenting new business opportunities, we have witnessed smaller homegrown IB players and private equity participants interested in facilitating capital for such businesses. The primary goal of IB being capital provision for deserving businesses, it is natural that they would evolve to suit the needs of smaller or mid-sized businesses. However, the approach of the traditional Indian promoter matters in terms of hesitancy to partake control/stake in lieu of capital. Over time, we have also witnessed a change in this promoter mind set which is also facilitating a conducive environment for more localized IB players who understand the needs of local promoters better.