The world’s largest investment banks will earn more dealmaking fees in India this year than in China, a first that financiers describe as a historic reorientation as they diversify away from a decoupling Chinese economy.
Foreign banks have pulled in $231mn in mergers and acquisitions fees from India so far this year, according to Dealogic, beating the $204mn earned in China over the same period.
JPMorgan is among those that will earn more from M&A in India than in China this year for the first time, according to two people with knowledge of the bank’s position. JPMorgan declined to comment.
Revenue from Chinese equity and bond markets, long one of the biggest sources of fees for US and European finance houses in Asia, has fallen in 2022 as mainland China sealed itself off during the pandemic and increasingly favoured local banks.
Although deal activity is expected to expand as China now reopens, Wall Street bankers have warned that the long period of closure had made more Chinese companies turn to domestic banks for advisory work in the future.
Foreign investment banks’ core revenue — including equity and debt capital markets as well as M&A — has dropped 70 per cent to $602mn over the year to date compared with 2021, according to data from Dealogic. That follows a drop of 15 per cent the previous year.
The trend reinforces how the decoupling in trade, investment and technology between the US and China is affecting capital markets. While India remains a fraction of the revenue China historically brings in for global investment banks, the numbers are indicative of a broader shift by western finance to find opportunities and growth in other markets.
Jan Metzger, head of banking, capital markets and advisory for Citi in Asia, said “the evolution of the banking wallet there with the growth in tech, alongside the established Indian corporate titans being more active” had made India a “leading investment banking market for Citi in 2022”.
He added: “We expect that to continue in the years ahead with the pipeline [in India], one of the largest we have.”
The Singapore-based Asian investment banking head of one US bank described it as a “fundamental and I think permanent repositioning by Wall Street. If you believe [Chinese president] Xi Jinping is intent on building his own sphere of economic influence, while the US shows no sign of stopping its crackdown on China, where else do you go in the region?”
India has been a global outlier for M&A activity this year, even as inflation and recession fears forced some of the biggest declines in dealmaking in other regions since the financial crisis. M&A activity in India surged 58 per cent year on year to an all-time high of $148bn in the first nine months of 2022, according to a report by data provider Refinitiv. A significant chunk of that came from the $40bn merger between HDFC Bank, India’s third-biggest listed company by market capitalisation, and parent Housing Development Finance Corporation, the leading mortgage provider.
Bankers also said a shift in the type of Indian companies engaging them for initial public offering and equity issuance work had been pivotal. When many of India’s largest listings were privatisations of state-owned assets, the fees were relatively low. Now that the balance has shifted to private companies, the work is significantly more profitable.
The banking industry’s shift follows a similar dynamic at play in India’s tech sector last year, when many investment dollars were diverted from China to India. For every dollar invested in Chinese tech, $1.50 went into India in 2021, according to Asian Venture Capital Journal, though slower growth and rising interest rates this year helped reduce inflated valuations and some of the market frenzy.
“India can be unpredictable and certainly foreign businesses have been burnt [there] before. But you can no longer have all your eggs in one basket like China, especially as supply chains and economies decouple,” said one asset manager growing their India office, who did not want to be named because they still had clients and business in mainland China.
Additional reporting by Chloe Cornish in Mumbai