#NDTVProfitAtWEF | #JPMorgan's Vis Raghavan in conversation with Niraj Shah on the sidelines of #Davos2024. #NDTVProfitLive #WEF
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00:00 It turned out to be quite different from how the year ends.
00:03 2023 was a classic case in point.
00:04 But I'll still ask you from where you're sitting right now, how do you see the world of risk
00:08 assets in 2024?
00:09 I think it's going to be a choppy year.
00:13 Factor in a lot of volatility.
00:14 A lot of the volatility is going to be driven by geopolitical factors.
00:17 I think never have geopolitics become so entwined with the day to day.
00:24 So even if risk assets want to perform, I think geopolitics may have different plans
00:29 in mind for those assets.
00:30 So I think the concern forefront in investors' minds is how does the geopolitical landscape
00:37 navigate itself?
00:39 And add to that one more nuance, over half the global GDP is going to be going to elections
00:45 this year.
00:46 So that's not necessarily a bad thing.
00:49 There may be positives or negatives coming from it.
00:51 But clearly, there are a lot of extraneous events that will shape markets this year.
00:58 Is the world learning to live with geopolitical risks?
01:01 I mean, say, come 2020 or 21, if we were told that there will be two major wars continuing
01:08 or two major conflicts going on at a point of time when interest rates are volatile,
01:13 etc., one would have thought that risk assets would be at the valuations that they are at.
01:16 Is the world learning to live with geopolitics now?
01:19 I wouldn't say learning to live with it.
01:24 If you look at where we were, so you had COVID, you had a tremendous influx of liquidity through
01:33 central banks and finance ministries, over 21 trillion dollars being pumped into the
01:40 system.
01:41 2021 was a liquidity-fueled bonanza.
01:44 So every asset saw the ripple effects of all the liquidity in the market.
01:49 Then you saw that liquidity slowly being drained.
01:56 But then you had the war in Ukraine.
02:00 And along with it came inflationary pressures, supply chain concerns, which effectively meant
02:06 you saw rates having to rise quite dramatically.
02:11 And just when you thought things were OK, we will try and normalize, you saw the events
02:17 in the Middle East.
02:19 And a couple of points I want to point out.
02:22 A lot of the market feels that maybe the inflation battle is finally drawing to a close, 3% globally.
02:30 Maybe the journey from 3% to 2% is going to be more painful, but 3% is kind of habitable.
02:37 And maybe rates have also kind of stabilized, global rates, the US rates and Eurozone, etc.
02:43 And then you see what is happening in the Red Sea.
02:47 And if you look at what's happening in the Red Sea, you have roughly 15% of global seaborne
02:53 trade goes through the Red Sea.
02:56 8% of grain trade goes through the Red Sea.
02:59 8% of seaborne oil goes through the Red Sea.
03:03 Then you've got natural gas going through the Red Sea.
03:06 So imagine if that whole zone becomes paralyzed.
03:11 Imagine what it does to inflation, what it does to supply chains, what it does to energy
03:14 security.
03:15 So I think this thing never seems to go away.
03:18 And to a point, I think geopolitics is going to continue to feature.
03:24 And that could really kind of thwart a lot of the progress we've made so far.
03:29 The sun is really beating down on you, so therefore my hand here.
03:31 But we hope that the sun continues to beat down because it's really cold otherwise.
03:35 I thought you put your hand up in confidence in all the problems that we're facing.
03:39 Not at all.
03:40 And so the other aspect is, what does such an uncertain climate or world mean for dealmaking?
03:47 Because when I speak to dealmakers back in India, at least, about how 2023 shaped up
03:51 for them, right, or for the world at large, most people seem to believe that it was a
03:55 tale of two halves, so to say, globally.
03:57 In India, maybe a lot less than the world.
04:01 From where you are sitting, how do you see what happened in 2023?
04:05 And does that have any impact on what 2024 could be like?
04:10 So I didn't think last year was a tale of two halves.
04:13 It was a pretty grim year.
04:15 So the global investment banking fee pool for all the banks is around $80 billion every
04:21 year.
04:22 That's the steady state run rate.
04:24 In 2021, on the back of all the excess liquidity I talked about, it hit $135 billion.
04:30 That's a high watermark.
04:32 Last year, the fee pool was $66.5 billion.
04:36 So that fee pool was over a near decade low.
04:39 I mean, you have to go back to the financial crisis to see a fee pool so bleak.
04:45 There are however reasons why activity could bounce back.
04:50 So one of the biggest drivers of activity is going to be private equity.
04:54 So private equity, venture capital funds, PE funds globally, are sitting on $2.5 trillion
05:00 of firepower, which they are motivated and incentivized to deploy.
05:05 So they will gather assets.
05:08 They're also sitting on around $120 billion of secondary shares, secondary holdings, that
05:14 they will get out of because these are IPOs that have happened, some underwater, but they're
05:19 not in the health to maturity kind of mindset.
05:21 At some point, they will divest of those assets.
05:25 So I would say there are factors.
05:28 And if you look at kind of corporates, and if you look at valuations globally, including
05:32 in India, valuations are at pretty healthy levels.
05:38 I'll use the word healthy.
05:42 And if you have a healthy valuation, with healthy valuations come a responsibility.
05:49 Responsibility to show earnings growth, to show earnings momentum, top line, bottom line,
05:56 share price momentum.
05:58 And if that is not going to come organically, it is going to come through acquisitions.
06:02 So there are drivers which allow you to kind of partake, some out of necessity, some out
06:13 of desire that will encourage corporate finance activity.
06:17 The headwinds are back to geopolitics, because there is uncertainty.
06:22 So if you're on a board, the question is, do I need to go now?
06:25 What is coming?
06:26 Or should we just kind of put our head below the sheets and wait for a better day?
06:32 So do I pause and wait for some clarity?
06:35 And then the other kind of reason why we sing a bit of lull is given all the drive to nationalism,
06:47 French shoring, near shoring, national security and the like, you're seeing the deal gestation
06:54 periods for referrals, antitrust, et cetera, are getting longer, because there are more
07:00 referrals, there's more scrutiny.
07:02 So a deal that would have typically taken 12 months historically may now take 18, 24
07:07 months or longer.
07:08 So if you're a board of a target company, you question, do I want to subject my employees,
07:15 my company, my shareholders, my customers to that prolonged period of uncertainty, not
07:21 knowing whether this thing will in fact close or otherwise?
07:25 So I think there's a lot more caution and kind of there is more introspection around,
07:33 do you go, don't you go?
07:35 And when you kind of factor in the geopolitics and the global macro uncertainty, the tendency
07:42 is let's wait and see.
07:45 So I would say there are a lot of drivers that are fodder for activity, and then there
07:51 are a lot of headwinds that kind of say, hey, pause.
07:55 So that needs to be.
07:56 And then the biggest final kind of hurdle is the valuation bid offer between buyer and
08:02 seller.
08:03 So there is in one pocket still a bubble mindset where they say, oh, my stock used to be there
08:10 in 2021.
08:12 But 2021 was a mirage, forget it.
08:15 The world has moved on.
08:17 And I think that valuation is coming together.
08:22 You see more and more of it.
08:24 But that bid offer is narrowing when it was this far apart at the beginning of the year.
08:30 So I'm tempted to ask you, you mentioned a few factors and I'm trying to place India
08:34 out there.
08:35 One, the depth of the markets improved.
08:37 So the tape showed that FIIs can exit or investors can exit in large quantities if they want
08:42 to.
08:43 Two, geopolitical stress and political uncertainty.
08:46 If anything, India is probably the oasis of calm out there, placed strategically geopolitically
08:52 and political continuity or policy continuity seems to be a higher probability, if you will.
08:59 And growth as well.
09:01 Maybe if not an oasis of growth, then certainly amongst the larger economies, arguably the
09:05 fastest growing economy.
09:07 Does this all auger well for dealmaking, risk asset valuations, etc. in India?
09:13 Or is that point of valuation, healthy valuations, a bit of a hindrance there?
09:18 Look, I think this is, you know, it augers exceptionally well.
09:24 This is as a proud Indian, this is, you know, this is India's moment.
09:30 This is India's chance at a time when the world lacks an engine room for global growth.
09:38 India is very much that engine room.
09:41 And I was looking at, you know, our economist kind of global growth matrix.
09:46 And India is right up there in terms of, you know, its propensity to grow.
09:51 And it's not just, you know, sporadic growth.
09:54 It's sustainable growth year on year on year on year on year.
09:58 And I think this really is India's moment.
10:01 So to your question around, you know, is this growth kind of organic?
10:10 Is India caught by any of the, you know, on the cross wires of any of these global geopolitics?
10:17 Thankfully not.
10:19 It's kind of steered, managed to navigate itself, you know, exceptionally well.
10:24 So I think this is India's golden moment.
10:27 And at a time when, you know, it's a net beneficiary of kind of global supply chains being rejigged,
10:36 whether it's French or near shore, you know, that theme, India is going to be a beneficiary
10:40 along with clearly Mexico and Cambodia, Vietnam, a lot of countries are beneficiaries.
10:44 But India is a beneficiary at scale of that of that whole exercise.
10:50 And look, I think it's, it is, you know, the leadership is excellent.
10:56 There is political stability.
10:58 The policies are excellent.
10:59 So I think, you know, it is, you know, as you say, it's yours to lose.
11:04 So it's ours to lose.
11:06 One final question, then, therefore, we've been hearing about, you know, companies wanting
11:10 to, I mean, services has always been a strong point, but manufacturing in India and manufacturing
11:16 India for the world as well.
11:17 Now, the talk has been on for a while.
11:19 One can argue that maybe because services, FDI came off, that the FDI numbers are not
11:24 quite showing that.
11:25 But every conversation that I've had this year, as well as last year with global corporations,
11:28 we're talking about increasing the pie of India for India and for the world.
11:34 From conversations that you have, because you'll be talking to a lot many more.
11:38 Is that about to happen?
11:40 Is that a steady process?
11:41 Or will it actually pick up starting 2024, 25, maybe?
11:45 Look, which is why my emphasis on India's growth being sustainable growth.
11:49 So this is not a kind of a flash in the pan.
11:52 You know, this is something which is, you know, very endemic.
11:56 It's here to stay.
11:57 So FDI interest, you know, absolutely prides itself on that sustainability of the growth.
12:03 So it is more medium term, long term, as opposed to something which is short term.
12:09 On your question around, you know, making India or manufacturing in India, typically,
12:15 you know, there was a lot of competition between India and China for that manufacturing element.
12:20 There is India, you know, excelled in the IP, the software and the, you know, the more
12:28 service end of that spectrum, the manufacturing end of the spectrum, whether it was, you know,
12:34 the inward interest, whether it's quality control, whether it is, I think that bogey
12:38 has been busted.
12:39 We are getting really good at it.
12:41 I think, you know, that quality control and, you know, and now you have the broader macro
12:47 theme of necessities is the mother of, you know, of invention.
12:52 So fundamentally, that flow is coming our way as part of this, you know, global reshoring
12:57 theme.
12:58 So, you know, we better be there to receive it.
13:02 So if you know what I'm saying, it's kind of a, so there are, you know, both internal
13:07 and broader external factors that make India a net beneficiary in this kind of, you know,
13:13 making India and showing off its manufacturing prowess.
13:16 Great.
13:17 Well, the first time that we are talking to you, but I look forward to having you more
13:21 often because from where you are sitting, the wisdom that you can give us for our Indian
13:25 audience will be very high.
13:27 So look forward to that.
13:28 But thank you so much for spending the time and talking to us today on the sidelines of
13:31 the WEF.
13:32 Sure.
13:33 Thank you.
13:34 The pleasure was entirely ours.
13:35 Thanks.
13:36 And viewers, thanks for tuning in.
13:36 We'll see you next time.
13:37 Bye.
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