De-equitisation will boost share prices but hit capex

Significance

More merger and acquisition (M&A) activity, shareholder activism and earnings-enhancing share buyback programmes have more than offset the supply of new equity from initial public offerings (IPOs). Institutional investors are increasingly seeking higher returns from alternative assets such as private equity and a rising number of companies now have capital-light business models.

Impacts

• Greater interest from retail investors could boost demand for shares in companies with smaller market capitalisations.
• Rising concentration in many industries will attract interest from anti-trust authorities, particularly technology, retail and transport.
• If rising inflation eventually triggers interest rate increases, debt financing will be less attractive compared to equity financing.