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“In the next three to five years, what is looking good for India is IT services, exports and the agriculture sector. I am positive on pharma and some consumer stocks too,” says Manisha Girotra, CEO, Moelis India

What is happening in the world of start-ups? Funding seems to have suddenly dried up; we are hearing a lot of news flow regarding retrenchment in a lot of startups.
The world economy is facing unprecedented volatility and disruption and through all of that, the Indian economy is still looking pretty robust, despite the supply chain breaking up, food crisis, energy crisis, inflation as well as central banks pulling out liquidity.

The global economy has really got disrupted much more than anyone expected or anticipated and within that, India is looking pretty positive. Our GDP growth rates still remain intact, our central bank has been very proactive on inflation and so I think India stands out.

Having said that, there is a lot of disruption and volatility which has caused investors to pause. There is enough liquidity available in the market for Indian companies and the start-up ecosystem also. But this capital will halt and then calibrate as we go forward. I do not think we will see the kind of frothiness we saw in the market any more but for good, capital efficient businesses, capital is and will continue to be available.

What do you make of the fall in a lot of so-called growth businesses globally and the impact of that on the entire IT pack?
As I said, the disruption and volatility has surprised investors. As a result, there is a pull up of capital from all markets and basically there is a flight to quality, there is a flight to home markets, leading to disruption.

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In the case of IT services companies, the anticipation is that we may not see the kind of growth we saw in the last two years because if these global companies recalibrate, their profits get reduced and they will not have the kind of technology spends that they have in the last two years. Having said that, IT services companies have shown that they are the digital partners to the world.
I remain very positive on this sector. Some sort of correction was needed in this sector and in the next four to eight quarters, we may not see the kind of valuations that we saw in the past few years. IT & BPO is a very solid sector for India and I remain very positive on it for the next 5-10 years.

What do you mean when you say IT? Do you mean names like , or traditional companies like , which are high cash rich?
I thought you referred to IT services. Those are the ones that are linked to the tech companies globally.

Also, a lot of these tech companies which have got listed are saying that they are looking at saving costs and not burning money the way they used to. Do you think that is a positive?
Absolutely. As I said before, capital efficient businesses are the ones that are going to attract capital. I do not think businesses, which are just burning capital for the sake of burning capital, are just buying growth because they thought that is what could take to the IPO markets faster. Investors do not have patience for those kind of businesses. There is going to be a much needed recalibration and companies that will win are the ones that have a differentiated business model and paths to profitability and use capital efficiently.

In the startup sector, those are the business models that will win and raise capital.

In terms of the fundraising, a lot of IPOs were getting priced at very high valuations talking about growth. But recently we saw one of the IPOs had to revise their price twice. Where do you see IPO pricing moving? Will it be much better now?
I think so. There was a bit of frothiness and the market was fuelled by excess liquidity coming in from the global markets. That party is over and we will see IPOs getting priced sensibly.

Firstly there will be discerning flight to quality and only companies which have sound business models and using capital efficiently will get the capital. We would be able to go to the market and valuations will be far more sensible which is good for the long run. That way everyone will make money.

Coming to the Indian market, which are the growth sectors or value sectors that look interesting especially with a lot of correction that has happened?
In the next three to five years, what is looking good for India is IT services, exports and the agriculture sector. So businesses related to these sectors will do good as India becomes more of an exporter to the world. We grow a lot of things which the world needs, given the huge food and energy crisis and I would be positive around that.

Pharma is a sector I would remain very positive on. It is a $80-$90 billion industry where the generic supply to the world and more and more manufacturing will shift to India. So, pharma and IT services and also consumer companies. The next couple of quarters may be a little challenging for consumer companies as they re-price their products for the Indian consumers, but as strong consumer brands are able to pass through the pricing, we are positive on that sector too. So these are the segments that I would remain positive on for India.

Consumption has been a high PE, high growth sector. How do you look at that after the recent correction? , Jublant Foodworks have corrected 50%.
At the moment, the markets are experiencing extreme volatility and disruption given what is happening to the global markets. So, in some cases there is an over correction but all the names that you mentioned and the good and strong brands in the consumer market, I would remain positive on. They have the ability to pass on the price increases to the consumers.

Also we will see the rural economy recover as the monsoon is expected to be good and some of these brands will recalibrate, come back and some of these valuations will correct.

What is your view on private banks after correction?
I am positive on the banking sector in India. I think the private banks need to basically adjust these valuations to growth and the growth in these banks is very strong and continues to be strong as they expand more and more into the rural segment and get closer to the customers. They are all building huge tech platforms and getting more and more integrated with the consumer. I believe that there is no reason to have any pessimism on Indian private banks. They are all high on governance and have good quality management.

What would you go with in private banks – largecaps, midcaps or smallcaps? There are a lot of small finance banks as well.
One needs to see which banks have last mile connectivity and, of course, good liability sources. Those are the two parameters I look for, irrespective of size. Usual things like governance, good quality management, good branch network, are impotant too..

What is happening on the deal front? Where do you see the most attractive deals coming in?
On deal front, in two areas – private equity and VCs – there is a bit of a pause in money coming in. I do not think this is a halt. Both private equity and VCs remain very positive. Large funds like Blackstone, Carlyle, Advent have raised more funds and they will continue to deploy in India.

What is heartening is that Indian corporate balance sheets have cleaned up a lot in the last four-five years and while these corporates have not really been doing much in the last four-five years, I now see them coming back and actively looking at M&A and growing inorganically.

In the last five years, maybe private equity was about 60-70% of M&A deal flow; we probably see that recalibrated to 50-50 in favour of the corporate. Both sides will continue to channel the whole M&A flow and as valuations get more attractive, we will see more and more people wanting to deploy capital, most large corporates are today talking about acquisitions and as valuations get more sensible, we will see more deal flow.

Just a word on traditional sectors like power, metals. We have seen a lot of private equity deals in private markets, in ecommerce. Do you think traditional sectors will also start to attract a lot of money?
Yes, traditional will continue to attract money because the Indian GDP growth rates are looking robust, capex is expected to revive from corporates, infrastructure spend continues. As all of that happens, corporates basically want to participate in that growth and we will continue to see capital being deployed through the economy which is why we are seeing interest in power, renewables, EV space, auto. A lot of capital is coming in there for exactly the same reason. As the world economy shrinks, India is actually growing and that is really a sweet spot to be in today.


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