Recovering stock markets, along with US investor interest in India's growth story, could boost overseas IPOs by Indian companies this year on the New York Stock Exchange (NYSE) and the tech-heavy Nasdaq.
"Emerging markets continue to be an investment class that offers attractive risk/reward potential, and we believe US investors view Indian companies favourably," said Geoffrey Byruch, CEO of HFP Capital Markets, a boutique investment banking firm, in New York.
Companies seeking US listings have to be in compliance with strict US accounting standards. In 2010, India's fraud-hit Satyam was forced to delist its American Depository Receipts from the NYSE. However, for the most part, overseas-listed Indian companies have avoided the kind of accounting scandals that have engulfed a number of overseas-listed Chinese companies.
The Chinese accounting scandals have shaken both investor confidence and the prospect of Chinese firms aiming to list in the US. Last year, 71 Chinese companies listed overseas, but the strengthening of US regulations may lead to fewer Chinese companies going to the US.
"We do not anticipate China leading the IPO market for 2013," said Byruch."A significant portion of the investing public is still hesitant to invest in Chinese-based companies given the events of the last few years (delistings, financial restatements, etc). There is still a large disparity between US Generally Accepted Accounting Principles (GAAP) standards and Chinese accounting standards."
"Indian Accounting Standards, in our opinion, provide for more transparency and accountability versus those in China. Though both countries have adopted International Financial Reporting Standards (IFRS), India is better positioned with US investors at this point," he added.
Byruch is expecting a strong showing by Indian companies in the world's most advanced financial market. Here are excerpts from the interview:
Will recovering stock markets boost overseas IPOs by Indian firms in the United States?
The state of the US public markets has a substantial impact on not only domestic new issuances but also new issuances from foreign companies. US institutional investors have substantial cash reserves and are eager to make investments that represent significant alpha potential.
Emerging markets continues to be an investment class that offers attractive risk/reward potential, and we believe US investors view Indian companies favourably.
Does HFP Capital Markets have India-based companies in its pipeline seeking a listing on the NYSE or Nasdaq?
We are working with a variety of companies across several industries. While tech-centric companies tend to favour and benefit from listing on the Nasdaq, we are also working with Indian companies focussed on energy, industrial services, basic materials, consumer goods and telecom. Each company is unique, and we try to pair their story and investor base with the appropriate exchange.
How many IPOs do you expect in the US this year? How much do these firms hope to raise?
It's difficult to predict the exact number of IPOs and the corresponding amount of capital raised. While 2013 was off to a slower start than 2012, we're confident that activity will pick up over the coming quarters. Our best guess is that 2013 US IPOs will top over 65 issuers and more than US$20 billion raised.
The US is seen as a favoured destination by Indian firms, but is there enough American interest in new stock offerings?
We're confident US investors will be able to support each company we take public. As mentioned earlier, there is a lot of capital on the sidelines currently, so high-performing companies will benefit from these cash reserves. What's most important is making sure the company is a fit for the public markets.
Would you agree that India's new tech sectors are more based on new concepts, rather than profit models that the US market is more willing to accept than India? Would you say that firms in new sectors like fast-growing high-tech, clean energy, health care and life sciences are widely welcomed in the US?
At the end of the day, we believe that a company needs to be profitable in order for it to have long-term success. While there are many innovative tech companies, both domestically and globally, a profitable business model is ultimately critical. Certainly, timing the monetisation of your business, especially for tech companies, is a delicate issue. Many companies need to be, and should be, focussed on their platform, increasing their market share and user acquisition prior to focussing on their revenue model. That's not to say that the company shouldn't be moving toward revenue generation from the onset, however there's a time and method for appropriately doing so.
Tech, healthcare and life sciences are widely welcomed in the US; we're hesitant to support the clean tech sector at large, as it is currently out of favour with public investors and needs to be considered on an individual basis.
Can you talk about the New Delhi Investor Summit you hosted for Indian businesses looking to list on US exchanges?
We co-hosted our Indian Investor Summit with Fleming PLLC, a securities law firm based in New York City, and Alpha Partners, a full-service corporate law firm based in New Delhi, on 24 January 2013. This conference was our initial foray into the Indian market and we believe it was an overwhelming success. We met with approximately 20 companies across a wide range of sectors. The response and interest have been very positive and we expect to close our first US IPO of an Indian company in 2013.