India's power sector, short of capacity and starved of finance, will drive capital-raising in the country as operators embark on an expansion drive, a top Merrill Lynch banker said.
While India has made progress in expanding its roads and port facilities and improving its airports, development in the power sector has lagged and the country suffers from a peak hour power deficit of more than 10 percent, with blackouts frequent in some areas.
"What we have been lacking is power," said Saurabh Agrawal, who was recently promoted to head of investment banking for DSP Merrill Lynch, the India investment banking unit of Bank of America.
"We will see a lot of issuance coming out of power because that's the segment that's starved for capital," he said in an interview at the firm's offices.
A nearly 90 percent rally in India's stock market from October lows has led capital-hungry Indian companies to revive fund-raising plans.
Last month's decisive election win by the ruling Congress party-led coalition, meanwhile, has fuelled expectations for a kick-start to infrastructure projects in the country. The government has said India needs $500 billion in infrastructure spending in the five years ending in fiscal year 2012.
"The elections have been a game-changer," Agrawal said. "The key driver is we've moved away from coalition politics and back to a two-party system."
So far this year, 11 Indian companies have raised a combined $2.6 billion in equity, and three dozen more, including GVK Power, are looking to raise nearly $10 billion, according to Thomson Reuters data.
Many market players expect less than half of that money to end up being raised.
Agrawal said high quality players in the power and manufacturing sectors would be able to raise funds.
"Investors will differentiate between quality and fly-by-night operators," said Agrawal, who was previously a banker covering technology, media and telecoms.
Agrawal replaced Jayanti Bajpayi, who was named co-head of Asia-Pacific corporate and investment banking at Merrill Lynch.
Merrill Lynch is the sole arranger named thus far for a $600 million initial public offering planned by Adani Power. The firm filed draft papers with the Indian securities regulator in April and is awaiting approval for its listing.
JSW Energy, Jindal Power, Essar Energy and Sterlite Energy are among Indian companies that were considering IPOs before last year's market collapse.
Stakes in state companies are expected to be another source of equity coming onto the India market this year as the government looks to raise funds and plug a deficit.
On Wednesday, the country's coal minister said India will sell up to 10 percent of its holding in Coal India Ltd. State-owned Oil India Ltd and power generator NHPC Ltd are also slated for stake sales.
Merrill Lynch ended 2008 at third place in the Thomson Reuters India investment banking fees league table. It earned $33 million in fees, up 41 percent in a year when investment banking fees in India dropped more than a third, according to the data. For the first quarter of 2009, the firm did not figure in the top 10, the league table showed.