PSUs emerge as bright spot for investment banks amid recent correction: Emkay

A recent sharp correction in India’s equity markets is beginning to weigh on fundraising activity, but a growing pipeline of public sector deals is offering a silver lining for investment banks, Emkay Investment Banking said on Thursday.

While volatility has slowed activity on the deal street, the government’s divestment drive is expected to revive momentum. The Department of Investment and Public Asset Management (DIPAM) has set a divestment target of Rs 47,000 crore for fiscal year 2026, creating a significant opportunity for investment banks, Emkay said on the industry outlook.

Public sector undertakings have emerged as key clients, with recent initial public offerings (IPOs) of Life Insurance Corporation (LIC) and Indian Renewable Energy Development Agency (IREDA), and OFS transactions in ONGC, IRCTC, HAL, and Coal India keeping the market active. Upcoming issues, including IPOs of Bharat Coking Coal, CMPDI, MNGL, and QIP/OFS from IREDA, GRSE, Veedol, and several state-run banks, are expected to drive deal flow in FY26 and beyond.

Still, the impact of the market correction is evident. Calendar year 2024 saw 92 IPOs raise over Rs 1,62,261 crore, while 91 QIPs fetched Rs 1,36,424 crore. Year-on-year comparisons show IPOs in January-February 2025 fell to 10 from 15 a year earlier, and QIPs between January and March declined to just 7 from 18.

Despite the downturn, strong domestic support is helping cushion the impact. Systematic investment plan (SIP) inflows have consistently stayed above Rs 20,000 crore since April 2024, crossing Rs 25,000 crore for the last five months — a positive sign, Emkay noted, especially given negative market returns since September 2024.

Domestic institutional investors (DIIs) have also stepped up, investing Rs 5,70,000 crore so far in FY25, more than offsetting Rs 2,88,000 crore in foreign institutional investor (FII) outflows.

Emkay added that policy moves by the Reserve Bank of India, including potential repo rate cuts, relaxed risk weights for loans to non-banking financial companies, and other liquidity measures, along with budget initiatives aimed at boosting consumption, are expected to support credit growth and improve market conditions in the near to medium term.

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