The Indian stock market is thriving, with more deals happening now than in 2021, and many more in the pipeline, says Anu Aiyengar, Global Head of Advisory and Mergers & Acquisitions (M&A) at JPMorgan.

Both domestic and international companies are fueling this growth, with financial investors putting a lot of money into India and Japan.

In an interview with CNBC-TV18, she also mentioned that the M&A market has doubled compared to the last decade, growing from an average of $70 billion to $140 billion.

This growth is driven by four key trends: companies serving India’s market, the “Make in India” initiative focused on exports, major investments in infrastructure, especially digital, and the creation of acquisition opportunities and local business activities.

Below is the verbatim transcript of the interview:

Q: India is seeing such hectic activity, maybe less on the merger and acquisition (M&A) side, but a lot in the secondary market on the equity side. How do you find India and what is the feeling?

A: Very excited to be here and happy to be back here after a year. The mood continues to be better. Last year, when I was here, I thought it was pretty robust. And if possible, this year, it’s even more buoyant than last year. And as you correctly say, the activity and the equity capital markets here have been extremely high. So, the previous high watermark was in 2021 and this year, already, there have been more issuances than the full year of ‘21 so we are very optimistic, not just about this year, but also the next year and our pipeline is the best that it has ever been.

There are a lot of drivers for this because when you step back and look, the combination of what is happening domestically in India, as well as several multinational companies wanting an acquisition currency in India, so they are using this that enhances their ability for future optionality growth as well as where there is a depth and richness of capital markets.

Also Read: Exclusive | JPMorgan’s Jamie Dimon favours Elon Musk-headed efficiency commission

This is now an over $5 trillion valued equity capital market, and the growth that you have seen has also been tremendous, even in the M&A market, the previous decade was about a $70 billion average. This decade has been $140 billion on average. And that trend, as you have more companies, more companies investing in India, more companies with an acquisition currency in India, we see four different tracks of activities.

One is India for India, which is driving a lot of consumption. Second, there is Make in India, which is the exports part of it. Third, the tremendous investment in infrastructure, particularly digital infrastructure, as well as the fourth piece is all these currencies that are getting created, as well as domestic activity because earlier, when we were selling a business, we were looking at either the financial sponsor community, which is extremely active in India, and tremendous amount of money coming into India from sponsors. When you look at all of Asia, the two areas that financial sponsors are putting money into are India and Japan.

In addition to that, for the first time, we also see when we are selling an asset, we have a domestic Indian company as a buyer for these assets because everybody is looking at the valuation and saying, I can afford to pay 20 times or 25 times because I trade at 30 times or north of it.

Q: I am so glad you brought up that issue, because that is where we wanted to learn from your vantage point, valuations in the listed market, in the unlisted market over here. And as these deals happen, whether it’s M&A or secondary equity sales, one is always going to be wondering whether this indicates this, this is the peak, and you have seen enough boom and bust cycles when so-called smart insiders start selling, whether it’s private equity or promoters or early sponsors, when they start selling, is it a reason to be cautious, or is it just sign of a maturing market?

A: It is a sign also of what is the underlying fundamentals because valuation is related to that. So, what is driving that valuation is as important as where the valuation is. So, if it is based on the earnings of the company, it’s also based on the domestic amount of capital through systematic investment plans (SIPs) that is going into the equity market.

So when you look at the inflows, the inflows are pretty high, but then you look at the percentage of domestic household income that is going into equities, it’s still at a small percentage compared to most of the rich countries, or the Western world, or whatever you want to call it, as a percentage of how much money goes into the equity market.

Also Read:

What’s driving JPMorgan’s bullish view on two-wheelers

As long as the fundamentals continue to be strong, and as long as you have areas like this, the manufacturing growth continues to be there, digital infrastructure continues to grow, then the fundamentals support the valuation.

Q: You are not sounding too concerned about how companies are quoting at or how the valuations, at which deals are happening in India?

A: No, because currently it is supported by fundamentals and so that is what we keep watching to say, does the underlying fundamentals support the valuation? And then the impact of it is, like I said, in three different categories, emboldening domestic companies because when you feel confident about your stock price, you act with confidence, enabling financial sponsors because the whole way the financial sponsor trade happens is you buy something, and you have to have a view on how I exit. When you look at the equity markets and your ability to exit, it gives you confidence to invest, and then the third element is that multinational companies are creating a currency by taking their Indian business and listing it.

Q: Now let’s add the global backdrop to all of this because we speak when the rate-cutting cycle has finally kicked off in the US, there is also politics, so start with what lower rates are, in general, going to mean for the overall global M&A landscape and emerging markets like India or Asia? What do you say?

A: The expectation of the US Federal Reserve rate cut was well-telegraphed, and the market had built that into it. There is the further expectation as well, which also the market has, has built-in. So that is generally healthy because that means you feel better about inflation. And that is what makes the Fed confident to do that. So, the cost of doing deals becomes lower, which should enable more deal activity in theory. So, financing was always available, but the cost of that financing has gone a bit better, and when you look particularly at the overall global M&A market, strategic activity is back to 90% of historical averages.

Sponsor activity, which is much more influenced by the interest rates, is at 60% of historical levels. So, all the pent-up activity from the sponsor side, if that comes back online in 2025 and 2026 should prove very valuable. That has not been the case here in India, but more globally sponsored activity has been more limited.

Q: Two more interesting subjects. One is artificial intelligence (AI) and this huge disruption that is playing out across the world. What do you think it will mean in terms of deal activity or issuances for not just the world, but markets like India?

A: I am very excited about the possibilities of AI, both as a personal user, as well as the possibilities it has for our business and the possibilities it has for our clients. We had a wonderful presentation by the Union Minister on everything that is happening in India and the outlook for the next 10 years, the 2030 plan and AI have a pretty big role to play because if you are going to manufacture more and have exports that are being forecasted, this could be a game changer.

Also Read: What JPMorgan’s Latika Chopra expects for the FMCG sector this year

Right now, the number one topic that boards in global companies are talking about is the impact that AI is going to have on their businesses. We are testing several large language model (LLM) suites, about 400 different ones in our investment banking business, to try and see how it is that we can use that because the data is vast, and the organisation of the data is limited. So, if you can organise the data and draw conclusions from it, that can be powerful in terms of providing insights.

Q: The other hot subject that we must get your view on is the US elections, right? So, while the debates will continue and the estimates will keep swinging, what impact will it dramatically have, any meaningful impact, irrespective of the outcome, whether it is Republican or Democrat for markets in general?

A: So usually in an election year, there is not dramatically reduced or increased activity. There are idiosyncrasies when there is an expectation of some tax change one way or the other, but the overall M&A volumes in an election year are in line with other years. So, there is not a material change.

Places where you could have changed or the biggest debated areas are antitrust because the antitrust and regulatory framework and the unpredictability of it have been one of the impediments to deal-making. And so that is an open question in terms of whether is it going to be the same. Is it going to be different? And it is not even whether it is restrictive or expansionary. It’s just, can you predict it? Do you have a good sense of it?

Q: If I were to ask you to take a crystal ball and look forward into the next 12 to 15 months, talk about secondary market activity or M&A deals in general in Asia and in India in particular, what would you say would be the hottest sectors?

A: I view, in Asia, India to be the brightest spot within Asia and Japan to be the other kind of country. And we are very heavily invested and rooting for it. And sectors-wise, I would say digital infrastructure, energy transition, as well as multinational companies, are monetising.

For the entire interview, watch the accompanying video