In the financial world, investment banking (IB) activities can never be aloof from the larger macroeconomic and market conditions. This was visible in IB numbers for the quarter ended March 2020, when fees worth $222 million generated by IB activities took an annual hit of 33% from a year ago. This was the lowest quarterly figure since the first quarter of 2016 when IB fees worth $122.9 million were clocked.

However, the data for the full year compiled by Refinitiv—a company known for providing financial market data and infrastructure, and which is jointly-owned by the Blackstone Group and the Canadian multinational, Thomson Reuters—reveals an interesting twist. The data shows that IB activities in India have hit a three-year high, and have generated fees worth $1.025 billion during 2020.

While the total fees growth is lower at 2.5% over 2019, fees generated from equity capital market (ECM) underwriting at $291.7 million saw a whopping 70% increase compared to 2019, making it the highest in more than a decade. However, completed mergers & acquisitions (M&A) advisory fees fell 5.1% from a year ago and totalled $303.2 million—the lowest since 2017, when it had touched $301 million.

In 2020, the debt capital market (DCM) underwriting fees in India totalled $213.3 million—down 17.6% from a year ago, while syndicated lending fees fell 13.5% from last year and garnered $216.9 million. ICICI Bank took the top spot in India’s investment banking fee league tables with 12% wallet share and $123.2 million in related fees. Morgan Stanley followed in second place, taking a 10.7% wallet share with fees worth $109.6 million, while the government–owned State Bank of India (SBI) took the third spot with fees worth $101.1 million accounting for 9.9% of the wallet share.

According to Elaine Tan, a senior analyst engaged in deals intelligence at Refinitiv’s investing and advisory division in the Asia-Pacific region, overall deal making activity involving India faltered in 2020 as the disruptions brought by the Covid-19 pandemic and lockdown severely impacted almost every sector, on top of economic headwinds and geopolitical tensions.

Tan explains that India M&A deals declined 3.4% annually in 2020 at $82.4 billion. Compared to the recent all–time high of $132.2 billion in 2018, the latest year’s figures mark a significant fall despite being elevated compared to historical levels.

“India saw a bit of recovery after lockdown restrictions lifted, witnessing a 3.6% uptick in the number of announced deals during the second half of the year,” says Tan. “However, the pandemic pushed forth further M&A protectionism to curb opportunistic foreign takeovers of distressed Indian companies as a result of the crisis,” she adds. Proof: By number of deals, India’s inbound M&A activity fell to a three–year low, down 15.3% from a year ago, and 0.9% lower than the previous year’s deal value.

According to Tan, while the pandemic has undoubtedly been the source of many a disruption, but, at the same time, it has also opened several opportunities, particularly in certain sectors that thrived during the downturn brought on by the pandemic. These sectors include healthcare, telecommunications, technology, education services, and other businesses ripe for digitalisation. This, in turn, has driven deal making activity, ranging from domestic consolidations to opportunistic acquisitions from strategic buyers or cash-rich private equity investors. “This will potentially continue throughout 2021 as companies adjust to build resilience and continue to take advantage of the anticipated recovery in the post Covid-19 pandemic era,” Tan points out.

While M&A took somewhat of a hit in 2020, primary bonds and equity markets saw a flurry of Indian companies raising capital as a response to the pandemic, Tan argues. Evidently, Indian ECM activity set a new annual record with $37.6 billion worth of proceeds, surpassing the annual record of $31.2 billion set way back in 2007, as follow-on offerings hit all-time highs and initial public offers picked up activity during the second half of 2020. “Meanwhile, bond offerings from India raised $72.1 billion and witnessed the second highest annual total after last year’s [2019's] record high, benefiting from lower borrowing costs driven by domestic policy measures,” Tan adds.

As for M&A, the key deals of 2020 include Facebook Inc.’s $5.7 billion investment, in Reliance Industries’ majority–owned Jio Platforms, for a 9.9% stake. While Facebook–Jio Platforms was the largest India-focussed deal of 2020, in a privately negotiated transaction during the third quarter, Google International—a unit of Alphabet Inc—also acquired a 7.73% minority stake in Jio Platforms for $4.5 billion. No marks for guessing that the U.S. was the most active foreign acquirer in India during 2020 in terms of value as well as number of acquisitions, as value doubled to $19.1 billion from 147 deals compared to a year ago, capturing 51.9% of India’s inbound M&A market share.

At the same time, outbound M&A activity from India totalled $4.4 billion—up 58.4% compared to 2019, and the U.S. was the topmost targeted nation, both in terms of value as well as number of acquisitions from Indian companies, with 43 deals worth $3.5 billion, or 79.7% market share.

According to Refinitiv, a majority of the deal making activity involving India targeted the energy and power sector which totalled $13.1 billion in deal value, up 15.7% from a year ago, and captured 15.8% market share. Telecommunications and financials rounded out the top three industries with 13.1% and 11.8% market share, respectively. Morgan Stanley took the top spot for any Indian involvement in the M&A league tables during 2020, with $14.2 billion in related deal value, capturing 17.2% market share.

Similarly, in the ECM space, where the all-time high raise of $37.6 billion in 2020, was up 69.6% in proceeds from a year ago, Reliance Industries’ $7 billion rights offering in June became India’s largest-ever ECM offering, surpassing the previous record of ICICI Bank’s $4.6 billion follow-on offering back in June 2007. Refinitiv highlighted that a flurry of follow-on offerings totalling $32.9 billion, up 67.6% from last year, accounted for 67.6% of India’s overall ECM proceeds. The pandemic failed to dent the ECM records, as second and third quarter follow-on proceeds saw the highest quarterly period on record.

Similarly, initial public offers (IPO) by Indian companies totalling $3.6 billion in 2020, witnessed a 45.1% increase compared to 2019, the highest since 2018 ($4.6 billion). In the fourth quarter of 2020, at least 16 Indian companies launched their IPOs and raised $1.5 billion in proceeds, up 54% from the third quarter of 2020, and saw the highest quarterly totals since the first quarter of 2018 ($2.9 billion).

Sectorally, ECM issuance from India’s financial sector accounted for the majority of the nation’s ECM activity in terms of proceeds with 37.7% market share worth $14.1 billion in proceeds, up 44.7% from a year ago driven by equity issuances from local banks ($7.6 billion). Energy and power took second place with 18.9% market share bolstered by Reliance Industries’ $7 billion rights offering. While telecommunications rounded out the top three sectors with 11.3% market share of India’s ECM activity. JP Morgan led the ranking for India’s ECM underwriting with $4.5 billion in related proceeds and 12.1% market share. HSBC Holdings and BofA Securities took second and third place, capturing 8.4% and 8.1% market share, respectively.

On the DCM front, primary bond offerings from India-domiciled issuers amounted to $72.1 in 2020, a 16.6% decline in proceeds after a strong 2019, but still elevated compared to historical levels. The $1.6 billion bond offering from Aditya Birla Group’s Novelis Corporation in January last year is 2020’s largest bond issuance from an Indian issuer. Later, during the fourth quarter, state–owned Food Corporation of India (FCI) raised $1.1 billion from a 10-year government guaranteed bond.

In terms of the sectors, Indian issuers from the financial sector captured 60.9% of the market share and raised $43.9 billion, a 25.2% decline in proceeds compared to last year. Energy and power followed behind with 14.7% market share worth $10.6 billion, down 21.5% from a year ago. Axis Bank topped the ranking for India-issued bonds underwriting for 2020, with $10.96 billion from 149 eligible bond offerings and accounted for 15.2% of the market share.

Overall, for 2020, the IB numbers clearly depict that the Covid-19 pandemic caused jitters alongside the redefinition of the old normal. But soon investment bankers and their clientele adjusted and adapted to the new normal. It is worth reiterating Elaine Tan’s view that 2021 could see companies adjusting even further, especially in order to build resilience, and firms would continue to take advantage of the anticipated recovery in the post-pandemic era.

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