Michael Carapeit, ED and global head of Macquarie Capital, is no stranger to India. Of Armenian descent, Mr Carapeit was born in Kolkata and
studied in the city till 1974, after which his family migrated to Australia. His message to Indian companies looking to expand overseas is: dominate your home market before setting your sights abroad. In an interview with ET, Mr Carapeit says that the second half of 2010 will be much better for equity markets globally. Excerpts:
Is the worst of the European debt crisis over? Do you see some more unpleasant surprises?
We have a pretty good view of what the issues are, but the actual solutions are country and organisation-specific. From our point of view, we broadly see the economies moving into a positive territory. There will always be pain and there will always will be good times, regardless of market sentiment.
From an investment banking point of view, there are lots of M&A transactions happening right now, be it in the financial institution space or governments privatising infrastructure and utilities. A falling euro has seen many manufacturing firms across Europe becoming very competitive on a pricing basis than they would have been 18 months ago.
In Asia, we have a high single-digit growth and the actual ability to now source quality European equipment far more cheaply. It is a much more compelling proposition, and as a result, we see the manufacturing sector in countries, such as Germany, doing quite well. Financial services are going to be a challenge for a while, and obviously, the sovereign debt problem is there for everybody to see.
Do you see more M&As happening from Asia into Europe?
Yes, much more. We have seen Indian companies do this progressively over time. Larger players have had international operations for a while. The strategic issue for many companies is when you have such strong domestic demand where do you allocate your scarce capital.
In my opinion, unless you dominate your home market, it's pretty hard offshore. I see many companies, very often, say that well, the domestic market is very competitive, so let me try elsewhere. It is quite rare that a niche player in the home market can go offshore and suddenly become successful.
How do you see India faring relative to other emerging markets?
Very well, actually. The vast majority of the Indian economy is driven on a domestic basis. While not totally immune to what is happening around the world, it is a much more domestic demand-driven story rather than an international story for most of your companies.
Mega companies that have operations around the world will have to take these changes into account. The bulk of the Indian economy and majority of the Indian companies are going to see a 7-8% growth this year and if you are linked to GDP that is quite a good place to be to what is happening elsewhere.
Do you believe the second half of 2010 will be much stronger than what we have seen for equity markets in the first six months this year?
Markets, broadly speaking, are better than what they were 12 months ago, and will continue to get better. We will see continued volatility and people will take a conservative approach while managing their businesses. What we are seeing is management teams around the world are quite optimistic, but boards of directors tend to be a bit more cautious and are taking a more conservative view.
You have said in the recent past that buyers' bids are now nearing sellers expectations and that could help fuel M&A deals in 2010. Can you elaborate on that?
What I have noticed in business is that people who decide when deals happen are the people who own the assets. So, vendors decide when deals happen. Buyers have been hanging around for bargains and we haven't seen too many. So, it's only because buyers want to move things that they have had to move closer to the vendors price. The M&A market is no different to any other market that you are used to. Buyers are always there.
It's just that the sellers should want to hit the price. I think debt markets are more liquid than they were more than 18 months ago. But the amount of debt you can raise is isn't as high as you could previously. I don't think companies want to raise as much debt just on a conservative basis.
There is talk that India inbound deals are subdued on account of valuations though people expect to see a lot of M&A deals for India?
Vendors always have expectations and in a lot of inbound deals you have international investors who are looking at the opportunities in other markets and comparing them. So, globally, if you pay 6-7 times, but in India, you have to pay 20 times, you tend to think that you need very high sustainable growth rate assumptions to sustain this today.
Is the worst of the European debt crisis over? Do you see some more unpleasant surprises?
We have a pretty good view of what the issues are, but the actual solutions are country and organisation-specific. From our point of view, we broadly see the economies moving into a positive territory. There will always be pain and there will always will be good times, regardless of market sentiment.
From an investment banking point of view, there are lots of M&A transactions happening right now, be it in the financial institution space or governments privatising infrastructure and utilities. A falling euro has seen many manufacturing firms across Europe becoming very competitive on a pricing basis than they would have been 18 months ago.
In Asia, we have a high single-digit growth and the actual ability to now source quality European equipment far more cheaply. It is a much more compelling proposition, and as a result, we see the manufacturing sector in countries, such as Germany, doing quite well. Financial services are going to be a challenge for a while, and obviously, the sovereign debt problem is there for everybody to see.
Do you see more M&As happening from Asia into Europe?
Yes, much more. We have seen Indian companies do this progressively over time. Larger players have had international operations for a while. The strategic issue for many companies is when you have such strong domestic demand where do you allocate your scarce capital.
In my opinion, unless you dominate your home market, it's pretty hard offshore. I see many companies, very often, say that well, the domestic market is very competitive, so let me try elsewhere. It is quite rare that a niche player in the home market can go offshore and suddenly become successful.
How do you see India faring relative to other emerging markets?
Very well, actually. The vast majority of the Indian economy is driven on a domestic basis. While not totally immune to what is happening around the world, it is a much more domestic demand-driven story rather than an international story for most of your companies.
Mega companies that have operations around the world will have to take these changes into account. The bulk of the Indian economy and majority of the Indian companies are going to see a 7-8% growth this year and if you are linked to GDP that is quite a good place to be to what is happening elsewhere.
Do you believe the second half of 2010 will be much stronger than what we have seen for equity markets in the first six months this year?
Markets, broadly speaking, are better than what they were 12 months ago, and will continue to get better. We will see continued volatility and people will take a conservative approach while managing their businesses. What we are seeing is management teams around the world are quite optimistic, but boards of directors tend to be a bit more cautious and are taking a more conservative view.
You have said in the recent past that buyers' bids are now nearing sellers expectations and that could help fuel M&A deals in 2010. Can you elaborate on that?
What I have noticed in business is that people who decide when deals happen are the people who own the assets. So, vendors decide when deals happen. Buyers have been hanging around for bargains and we haven't seen too many. So, it's only because buyers want to move things that they have had to move closer to the vendors price. The M&A market is no different to any other market that you are used to. Buyers are always there.
It's just that the sellers should want to hit the price. I think debt markets are more liquid than they were more than 18 months ago. But the amount of debt you can raise is isn't as high as you could previously. I don't think companies want to raise as much debt just on a conservative basis.
There is talk that India inbound deals are subdued on account of valuations though people expect to see a lot of M&A deals for India?
Vendors always have expectations and in a lot of inbound deals you have international investors who are looking at the opportunities in other markets and comparing them. So, globally, if you pay 6-7 times, but in India, you have to pay 20 times, you tend to think that you need very high sustainable growth rate assumptions to sustain this today.
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