By Narayanan Somasundaram and Michael Flaherty
MUMBAI (Reuters) - UBS' (UBSN.VX: Quote, Profile, Research, Stock Buzz) India head said on Wednesday that local capital market action will not pick up until the second half of 2009, and it is likely that not a single IPO will list in the first half of the year as volatility keeps investors away.
The best opportunity for UBS in 2009 was inbound mergers and acquisitions as Indian companies seek capital to increase their size to compete better in the market, Manisha Girotra told the Reuters India Investment Summit.
IPOs would start to re-emerge later next year and capital will come back into the market, chasing mainly liquid stocks and companies with large market capitalizations in a "flight to quality," she said.
"I strongly believe the capital markets will not be open for business at least in the first half," Girotra said. "IPOs will be difficult to do even in the second half."
Share sales in India so far in 2008 have fallen 78 percent from a year earlier to $6.1 billion, with $5.2 billion of that coming in the first three months of the year, Thomson Reuters data shows.
More than a dozen IPOs have been deferred or canceled after stock prices tumbled amid the deepest financial crisis in 80 years.
But a large-scale privatization by the government, such as the proposed $10 billion IPO of state-run telecoms firm Bharat Sanchar Nigam Ltd, could change the landscape, Girotra said.
"Then people will invest when it is a must-have stock," she said. "There is cash in the system. Once the volatility goes out, investors will know how to price risks, price issues."
Investors would ideally like to see at least "three boring months" where markets hold roughly steady before they step back in, she said.
India's benchmark index .BSESN has fallen by more than half this year, cutting off a source of much-needed funds for Indian firms and contributing to a reversal of a trend of corporates expanding through overseas acquisitions.
"The best opportunity for any bank will be inbound M&A. It will be the theme of 2009. You will see a lot of activity there," Girotra said.
Pharmaceuticals, manufacturing, telecoms and media firms could attract interest from Japan, Europe and the United States, she said.
Japan's Daiichi Sankyo (4568.T: Quote, Profile, Research, Stock Buzz) bought a controlling stake in India's Ranbaxy Laboratories (RANB.BO: Quote, Profile, Research, Stock Buzz) for $4.2 billion earlier this year, and last month UBS advised Unitech's (UNTE.BO: Quote, Profile, Research, Stock Buzz) telecom unit on a $1.2 billion stake sale to Norway's Telenor (TEL.OL: Quote, Profile, Research, Stock Buzz).
On Monday, JP Morgan's (JPM.N: Quote, Profile, Research, Stock Buzz) India investment banking head said arranging private equity deals was one of the main focus areas for her firm.
(Editing by John Mair)
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