_1597732187024_1597732207166.jpg "Sunil Khaitan, India head, Global Capital Markets at Bank of America, said REITs tap right into a segment that is significantly underweight for most large funds in India and takes care of a number of issues that investors have with real estate.")
In an interaction with Mint, Sunil Khaitan, India head, Global Capital Markets at Bank of America spoke about the factors driving a rush of fundraising deals in the Indian equity capital markets, new pools of capital that are investing in India with rising flow of liquidity and why REITs have attracted almost a billion dollars from investors despite talks of work from home disrupting commercial real estate market.
Edited excerpts.
What’s making investors so bullish to put billions into equity deals that we have seen in the recent weeks? Is this bullishness limited to only the large cap companies or are investors also open to investing in midcap stocks?
Investors are keen to back companies that are intent on raising funds to pay off debt and improve their balance sheet. Companies wanting to raise capital to invest in opportunities arising out of this downturn are also favoured by investors. Our discussions with investors indicate that many are willing to go beyond the top tier companies and focus on well governed mid-cap names.
Is this dealmaking largely a function of the liquidity that’s flowing into the markets. Do you see this wave of liquidity continuing throughout this year?
From an international perspective, we haven’t seen a time when liquidity was available to this extent globally. Our analysts estimate that by the end of the pandemic, fiscal or monetary stimulus to the tune of at least 18% of global GDP will be doled out by various governments and central banks across the world. Initially, when the rally began many investors didn’t have the conviction that this would be long drawn, instead it was felt as a dead cat bounce. But over a period of time, investors who waited on the sidelines, saw a negative impact on their portfolios.
On the domestic side, flows have slowed, as retail investors are cashing in and taking some of that money off the table. At the same time there are investors who need cash for contingencies due to the pandemic and hence are selling. So, domestic mutual funds are definitely seeing less retail flows, which may constrain them. However, the base is so much higher given huge liquidity flows in the last two and half years.
When the Fed (US Federal Reserve) states unequivocally that they will continue to infuse liquidity “as much as needed and for as long as needed", it does give a great deal of comfort that liquidity will not dry out.
Are you seeing new pools of capital that are coming into Indian markets?
Definitely, India is getting more flows. With the US China trade tensions, investors are worried that there could be an event risk if the US announces sanctions and in that case incremental dollars to China will slow down. Some large investors are taking money out of China and some of that flow is coming into India. What we are also seeing is acceleration of new funds from large global investors. Typically, the capital flow we see into India from such large investors is from the emerging markets funds and the India dedicated funds but off late a lot of global funds have started deploying fresh capital into India.
REITs have seen large capital flows recently, despite concerns of increasing work from home practices. What’s driving the investor interest?
REIT is an area that will see greater traction going forward. This year alone, nearly a billion dollars have been invested into this product. We reckon that if we had quality deals at right pricing of another two billion dollars more, the markets would have had the appetite to absorb it. REITs taps right into a segment that is significantly underweight for most large funds in India and takes care of a number of issues that investors have with real estate. It is commercial real estate which has a trustee manager; decisions on transactions and acquisitions are based on a majority of minority votes. These factors are liked by global investors. You will see episodes and anecdotes of one company giving up some space here and there, but the overall story remains intact. Companies are taking up new spaces and there is also de-densification of office space that will happen, which will keep demand intact. We could see at least one more REIT listing in the near term.
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