India At Centre Of Global M&A Activity, Says JPMorgan’s Madhav Kalyan
M&A activity in India has picked up across sectors as the government’s capex push continues to drive critical industries, he says.
India is very much at the centre of the mergers and acquisitions for strategic investors as well as global private equity players, according to Madhav Kalyan, chief executive officer at JPMorgan Chase Bank India.
M&A activity has picked up across sectors as the government’s capex push continues to drive critical industries, Kalyan told BQ Prime’s Niraj Shah. He cited the example of rising capacities in cement and steel, which came with a rise in public expenditure.
“Even as they (investors) are looking from their vantage point at being overdependent on one region or one geography in terms of supply chains, India offers a viable alternative and a scale-based alternative. A lot of Asean (countries) have probably taken the early lead but there are scale issues in many of these markets,” Kalyan said.
According to him, private equity players are showing increased interest in larger and control-oriented transactions across multiple sectors. “That is going to trigger, at least in the foreseeable future, a set of transactions that’s going to drive transactions (activity) in the M&A space.”
India: An Investment Oasis
Resource allocation during the pandemic managed to reach the nation's hinterlands, ensuring that the recovery in growth is not limited to just urban circles or corporate balance sheets, Kalyan said.
“When investors look at India from the outside, the one thing that impresses them a lot is policy certainty, a strong government, a government that has stayed the course, in terms of wanting to continue the reform agenda through Covid-19 as well.”
The government’s focus on soft or digital infrastructure, services infrastructure, and hard infrastructure has piqued investor interest, he said.
“As we continue to invest in digital infrastructure, services infrastructure, and hard infrastructure, that’s really been driving growth or enabling growth drivers. That’s how investors, when they look at it from the outside, see a very thoughtful investment in all these areas.”
He emphasised on the reforms seen in services infrastructure. “Corporate balance sheets are at their cleanest. I haven’t seen Indian bank balance sheets as clean as they have been in possibly a decade, and ready to take on capex when that comes,” Kalyan said.
According to him, consumption continues to be a laggard and consumption-led capex hasn’t started. "But government-related capex… the moment the government says 'I’m doing Nal Se Jal’… steel takes off, cement takes off, non-ferrous metals take off. All of that infrastructure is where we are seeing capex when we look at corporate India,” he said.
Kalyan expects consumption to improve even amid inflation, which will drive capex creation in the private sector.
Corporate Sector Themes
Drawing upon his interactions with the Indian corporate sector, Kalyan noted that four major themes have emerged in recent times.
Primarily, he found them “very razor-focused on growth, coming out of Covid, and very focused on profitability”.
The next theme is attention towards volatility. “The message we get from corporates is they’re very focused on finding the right solutions to volatility. This could be de-bottlenecking and diversifying supply chains, getting into long-term contracts, actively managing currency and the interest rates in a rising interest rate scenario,” he said
The corporates are also focusing on ESG, with conversations around the topic becoming very “pointed”, Kalyan said.
“I believe this will be a long-term driver of capex as well because existing processes will be relooked at, their carbon intensity will be looked at. As people move towards ESG, the investments in transitions is going to create a wave of capex.”
Lastly, companies are rushing to create digital customer outreach initiatives, be it D2C, participating in open networks or more, he said.
“Friendshoring, which is a form of de-globalisation, is something that will play out, create smaller areas of friendly nations getting together. The China plus one theme is playing out. All these coupled with the fact that corporate capacity utilisations are 75-76%, we are coming to the cusp of a capex cycle,” Kalyan said.