For a sign of how India has grow to be a brand new looking floor for worldwide investment banks, look no additional than Jefferies.
The US monetary group beforehand had a minor presence on this planet’s most populous nation and was higher recognized for its analysis notes than dealmaking prowess. But immediately it’s constructing on a run of transactions — together with offers involving the Adani group — to poach senior bankers away from rivals and bulk up its workplace.
“In the past three years we’ve supplemented the core investment banking capabilities alongside capital markets, and that has made us far more successful,” mentioned Aashish Agarwal, Jefferies’ India nation head. “India as a market, Asia as a geography, is something we are deeply focused on.”
Jefferies remains to be one of many smaller investment banks eyeing enlargement on the subcontinent as they transfer to construct a brand new centre of growth in Asia, with their once-lucrative investment banking enterprise in China drying up.
Agarwal mentioned it had accomplished 50 transactions previously three years. “Six to seven” had been for Florida-based GQG Partners, together with serving to it purchase massive stakes in firms belonging to the Adani empire over the previous 12 months because it got here below strain from the brief vendor Hindenburg. He has not too long ago employed two senior bankers from Barclays.
Robust financial growth, in addition to tensions between the US and China, have made India a goal for enlargement for worldwide firms, who can look to investment banks to assist them make offers. “It’s almost impossible for an international bank to ignore India,” mentioned Debasish Purohit, co-head of India investment banking at Bank of America.
In the case of Barclays, India’s significance “gets more accentuated when you contrast that with slower activity to date in China”, mentioned Pramod Kumar, chief government of the lender in India. “I would think most banks will show relatively greater risk appetite to exposure on India versus China.”
For some, India is hardly new territory. HSBC now makes greater than $1bn in annual earnings within the nation. Jefferies tops the fairness capital markets rankings compiled by Refinitiv this 12 months, with a 14 per cent market share, adopted by native dealer IIFL and US investment financial institution JPMorgan. But others have discovered the transaction enterprise to be powerful. UBS closed its India investment banking enterprise final 12 months.
You are seeing a snapshot of an interactive graphic. This is almost definitely resulting from being offline or JavaScript being disabled in your browser.
Financiers warning India is unlikely to switch China for global investment banks as a result of the enterprise in India is vastly totally different — and lots much less profitable.
“I think our revenue base in India should be able to double or so, but that’s still not going to compensate for what I think in the next couple of years is the reduction we’re going to see in China,” mentioned Peter Guenthardt, Bank of America’s head of Asia-Pacific company and investment banking, who is predicated in Hong Kong.
“India has traditionally been a market that has paid relatively lower fees,” he added. “While we are seeing a slow but steady mindset shift in willingness to pay for advice, there is a long way to go.”
“India has certain peculiarities,” mentioned Kumar at Barclays. “The economy is essentially to a large extent domestic-driven.” In distinction, investment banking earnings in China had been pushed by worldwide offers, Kumar added.
“There was a lot of cross-border M&A, a lot of Chinese companies bought international companies. Many of them did US listings [ . . . ] and a very large number of bond offerings consistently over the past seven years,” he mentioned.
Compared with China, the “total size of the opportunity [in India] is relatively much smaller”, mentioned Peeyush Dalmia, who leads McKinsey’s monetary companies apply in India. “Most of the very large deals actually don’t pay you much or pay you incredibly marginal fees.”
Data from Dealogic exhibits US, European and Australian banks earned $342mn in investment banking revenues from Indian shoppers final 12 months, in contrast with $689mn from Chinese ones. In 2021, $580mn was earned in India in contrast with $2.2bn in China. Revenues from India had been simply 6 per cent of the $5.7bn complete investment banking fees that these worldwide banks made within the Asia-Pacific area in 2022.
In India’s inwardly targeted market, worldwide investment banks compete with native ones which might be specialists within the nation’s rules and cost very low fees to rearrange transactions for firms with whom they’ve longstanding banking relationships. Indian banks made investment banking revenues of $267mn final 12 months, in keeping with Dealogic — 22 per cent lower than their overseas opponents.
Kumar compares serving to an organization checklist within the US, which might earn a financial institution about “6 to 7 per cent”, with the identical job in India, the place “fees tend to be 2 to 3 per cent at best”.
But banks should make a “trade-off” between low fees and excessive growth, mentioned Bank of America’s Purohit. “It’s a low fee-paying market but the fastest-growing market.” Taking growth under consideration, “you’ll probably find India attractive and profitable”, he mentioned.
One supply of hope for investment banks betting on India is that worldwide personal fairness corporations are stepping up their dealmaking there.
“There’s a desire from some limited partners [investors in private equity funds] to reduce exposure to China,” mentioned Dieter Turowski, chair of Morgan Stanley’s Asia-Pacific investment banking operation.
“If you’ve got an Asia-wide private equity fund and you’re trying to shrink China and invest in markets that are exciting and growth-oriented, India’s obviously a good place to do it.”
Jefferies’ Agarwal declined to touch upon Jefferies’ fees or profitability in India however dismissed the concept lending was the one solution to revenue.
“Making money from money is, I would say, relatively easy,” he mentioned. “We believe in partnering with our clients, in good times helping them to raise money, in tough times consolidating, whatever it requires. And that’s more intellectually challenging.”
