Jefferies sees rising investment banking fee prospects in India after bumper 2023

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India head says fee sizes have risen in last two years

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Bank is No.1 IPO adviser in India this year-LSEG data

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Jefferies has expanded in India and other countries in 2023

By M. Sriram

MUMBAI, Dec 21 (Reuters) - Jefferies Financial Group expects investment banking fees in India to rise in the next couple of years as the number of deals grows, its country head said, bolstering the prospects for the U.S. bank in a country where its market share surged in 2023.

Global investment banks are increasingly targeting India to generate revenues in Asia as dealmaking activities in China, which has long been an engine of growth for them, slow sharply due to an economic downturn and regulatory uncertainties.

Making money in the South Asian nation, however, has long been a challenge for Western investment banks because most deal sizes tend to be smaller and advisory fees for mergers and acquisitions (M&A) and capital raisings much lower than in most other large markets.

"Indian markets have come of age. The last two years, we are seeing higher fees because of the complexity of deals and sheer number," Jefferies India head Aashish Agarwal told Reuters in an interview. "If you are adding value, people are willing to pay."

Newer Indian companies like those owned by private equity firms are often more receptive to paying fees, he said, adding for a large merger 2% to 2.5% of the deal value would be a "decent number."

While that range is lower than the U.S., where companies pay as much as 5% to 6%, it has risen from 1.5% or even less a couple of years ago.

"I won't be surprised if India can be the most profitable market, by margins, for foreign (banks)," Agarwal said.

A surge in fee income should augur well for Jefferies which has expended its India investment banking team and boosted its market share in equity capital markets (ECM) and M&A over the past year.

Jefferies is No.1 in the India ECM tables this year, with nearly 11% market share, jumping from seventh last year, according to LSEG data, outranking local and international rivals like Kotak and Morgan Stanley. The U.S. bank stood at No.11 in India M&A, up from 20th last year, the data showed.

In India, the New York-based investment bank advised on deals including raising billions of dollars for billionaire Gautam Adani's Adani Group after a brutal short-seller attack in January this year.

Jefferies' recent expansion of headcount in India, Hong Kong, and elsewhere in the region and beyond is in sharp contrast with some of its Wall Street peers, which have been focusing on controlling expenses given slowing economies.

Jefferies in October moved into a new, larger office in the country's financial capital Mumbai - a 16,500 square feet (1532 square metres) facility in the southern part of the city overlooking the Arabian Sea.

At the Mumbai office, Jefferies employs about 100 people across investment banking, equities and sales, many of them hired from local and global investment banks over the last couple of years.

Besides India, the bank in recent months has opened offices in Israel and Brazil and beefed up its investment banking presence in Dubai. Jefferies also set up an investment banking and capital markets unit in Canada this month. (Reporting by M. Sriram; Editing by Sumeet Chatterjee and Jamie Freed)