Bankers keen on doing business in India have generally spun stories of frustration in recent years. The potential of the country is clear and well documented.
But red tape, constantly shifting regulation, corruption and most tellingly, companies that just don’t want to pay fees comparable to the rest of the region, have meant many foreign investment banks have regarded the world’s largest democracy with barely concealed suspicion.
The apparent success of the democratic process in the recent Indian election should go some way to establishing a new normal for investment banking in India.
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| A supporter of Narendra Modi, India's prime minister, holds up a mask of the man |
Narendra Modi’s Bharatiya Janata Party (BJP) swept to power with an overwhelming majority in the clearest cut election victory in India for 30 years. In those 30 years, India has flattered to deceive on the global stage. It distantly trails China in most measures of success, with GDP per head, for example, about a quarter of that in China.
Modi will need to work alongside the promising central bank governor Raghuram Rajan in curbing inflation and the government will also need to assure banks with the will to work in India that they can provide the way.
M&A activity in the country has stalled badly. ECM issuance has been badly hit, in spite of a stock market that continues to perform well.
Activity in both areas is expected to pick up significantly in the near future as companies emboldened by the clearest governmental framework in living memory get set to go to work and push through deals that previously they shied away from.
The signs are already encouraging that India means to push through meaningful reform. An early example is that foreign branches and subsidiaries of Indian banks will now be allowed by the Reserve Bank of India to offer structured financial and derivative products at established financial centres.
Previously, such products could only be offered with the prior approval of the RBI, unless they were specifically permitted in India as well. Several investment banks have started building up their teams in preparation for the predicted upsurge in deal activity under the new government.
Modi warned his opponents before the election that they faced a BJP ‘aandhi’ (storm). Deal activity should go some way to ensuring the storm continues to rage.