Amid geopolitical uncertainties and higher-for-longer US interest rates, the South Asia region, led by the continued development in India, in particular, remains robust. The country is expected to post a growth rate of 6.7% in 2023, according to the Asian Development Bank, and is supported by a young and motivated population with a median age of 28.7 years.

This combination of factors facing the country has contributed to an active capital market, with one banker who covers equity capital markets, noting that “when we look back at 2023, we will feel fulfilment and satisfaction for the deals executed.” And he expects that “India will give us blockbuster deals in the next three years.”

The Nifty 50, an index tracker for the 50 best-performing stocks listed in the National Stock Exchange of India, gained almost 20% over the past year and exceeded the 20,000-point mark in late 2023. Companies aiming to go public in India were not intimidated by the uncertain market environment. Instead, the country positioned itself as one of the biggest initial public offering (IPO) markets in the world with a valuation of 494 billion rupees (US$5.95 billion) as of end-2023, according to Prime Database, with 57 newly listed companies, primarily from the healthcare, capital goods and information technology sectors.

Indian companies in the healthcare sector, in particular, were favoured by investors, who saw opportunity in the industry due to the emerging Indian middle class being able to afford better health services, which is fuelling the nation’s push towards becoming a pharmacy hub.

Investors also favoured real estate investment trusts (Reits), continuing the expansion of this asset class that saw its first listed Reit in 2019. Among the Reits, Nexus Select Trust debuted in the stock market in 2023 as the first listed retail Reit in India, raising 32 billion rupees (US$385 million), making it one of the largest IPOs of the year.

The pipeline of IPO deals in India doesn’t appear to be slowing down anytime soon, with market participants sharing that there is strong demand from both retail and institutional investors for Indian names. “Both IPO promoters and private equity investors,” shares a Mumbai-based banker, “will turn to anything they can take to the public in this period.”

In contrast, the G3 bond market in India collapsed in 2023 with a number of bond issuers opting to tap the local currency market for their fundraising needs. US dollar bond issuance from Indian issuers plunged to US$4.1 billion in 2023, its lowest since 2009, according to data from the London Stock Exchange Group (LSEG), and a far cry from the recent high seen in 2019 when over US$20 billion was raised by Indian issuers.

Yet, there were a number of environmental, social and governance (ESG)-themed US dollar issuances in the market, signalling the importance attached to sustainable finance in India by high-profile issuers, among them, the Export-Import Bank of India and REC.

But US dollar issuance didn’t present the whole picture as foreign currency borrowings in India, according to LSEG, increased to a nine-year high of US$22 billion, dominated by the Japanese yen.

On the local currency side, Indian rupee bond issuance, Prime Database figures show, also achieved a new high, as of November 2023, of 8.83 trillion rupees (US$10.97 billion).

“It’s the year of differentiated business,” states a banker covering the Indian loan and bond markets, “meaning that we are able to introduce a number of new structure products in the Indian debt capital market that benefit both issuers and investors.”

Although the credit spread drove investors away from the Indian bond market earlier in the year, they returned in the second half, with funds mainly flowing to government bonds. The sentiment came after JP Morgan’s announcement to include Indian government bonds in its Government Bond Index-Emerging Markets in mid-September 2023.

Foreign investment, which used to see tepid participation in government bonds, has surged to a record high since 2017, according to clearing house data, reaching 598 billion rupees (US$7.20 billion) in 2023.

Despite the high interest rate, India still managed to bag some high-yield bonds in 2023, primarily targeting the renewable sector with ReNew and Continuum tapping the market.

In terms of merger and acquisition (M&A) activities, India in 2023 saw lacklustre performance. The number of activities, according to LSEG’s investment banking review, was halved from the year before to US$83.8 billion, and inbound M&A activities dived to their lowest level since 2017. As well, their outbound counterpart was cut by 40.4%, while private equity-backed M&A was down 60.7%. The financial, industrial and high-tech sectors, the review also shows, were those most targeted by M&A activities.

Meanwhile, leveraged buyouts sustained the appetite of fast-growing Indian companies keen to acquire stable and cash-rich peers from the same industry. In addition, the loan syndication market had some notable activity with several Indian companies able to expand their borrowing base, while others, signalling to the market they were serious about sustainability, executed either green or social loans to support their company’s ESG goals – key among the companies were Shriram Finance and the State Bank of India.

Outside of India, neighbouring countries, such as Bangladesh and Pakistan, were able to have a decent amount of deal flow activity in debt financing, with some focusing on ESG themes, such as climate impact and gender equality.

For the complete list of best bank and advisers in South Asia, please click here.

For the complete list of best deals in South Asia, please click here.

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