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Indian growth attracts global investment banks despite low fees

by Janessa Lee

India Emerges as a New Target for International Investment Banks

In recent years, India has become an appealing destination for international investment banks seeking growth opportunities in Asia. One notable example of this trend is Jefferies, a US financial group that has ramped up its presence in the country and is attracting senior bankers from rival firms. It has capitalized on a string of successful transactions involving the Adani group to establish itself as a key player in India’s investment banking scene.

Jefferies is not alone in its pursuit of expansion in India. Other investment banks are also eyeing the country as they seek to offset the decline of their once-profitable investment banking businesses in China. The robust economic growth of India, coupled with ongoing tensions between the US and China, has made the country an attractive destination for international companies looking to make deals. Investment banks play a crucial role in facilitating these transactions.

Barclays, for instance, has recognized the significance of India in comparison to the slower activity in China. The bank’s CEO in India, Pramod Kumar, emphasizes the unique nature of India’s domestic-driven economy, whereas investment banking profits in China were fueled by international deals. However, financial experts caution that India’s transaction business is not as lucrative as that of China. The major deals in India tend to yield lower fees, unlike in China, where cross-border mergers and acquisitions and bond offerings have been more profitable.

Data from Dealogic reveals that investment banking revenues earned by US, European, and Australian banks from Indian clients were significantly lower than those from Chinese clients in 2021. Indian investment banking revenues were just 6% of the total investment banking fees earned by international banks in the Asia-Pacific region that year. Additionally, international investment banks face competition from local banks in India, which benefit from their deep understanding of local regulations and charge lower fees due to longstanding relationships with domestic companies.

Despite the challenges and lower fees, investment banks like Jefferies remain optimistic about the potential for growth in India. They believe that the country’s rapidly expanding market presents substantial opportunities for profitability. Some hope comes from the increasing dealmaking activity of international private equity firms in India, as limited partners seek to reduce their exposure to China and explore vibrant and growth-oriented markets like India.

Although the investment banking landscape in India is not without its complexities, international banks are increasingly recognizing its potential as a lucrative hub for growth in the Asian market. As they navigate the unique dynamics of India’s economy and transaction environment, these banks are positioning themselves to capitalize on the country’s expanding business landscape and forge long-term partnerships with Indian companies.

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