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00:00Hello and welcome to NDTV Profit.
00:07We are at the J.P.Morgan India Investors Summit and with me is Shrood Linnart who is the J.P.Morgan
00:13Asia-Pacific CEO.
00:14Shrood, thank you very much for being on NDTV Profit.
00:18It's one of the biggest conference that you've held in India with the kind of participation
00:23that you're seeing.
00:24Yeah, this is our ninth year of hosting this summit and it's been growing every year and
00:28I think this year particularly it's taken a growth spurt.
00:32We have more than 200 corporates present, more than 450 investors, at least half of
00:40them international.
00:42So I just think it signifies the interest that the world has in India and to bring people
00:47together in a conference like this, have them hear the story and go back to their countries
00:52and design their strategies around it, I think is an important role for J.P.Morgan to play.
00:58You have a very good view of the Asian market and India within that.
01:02How do you see India vis-à-vis other Asian players?
01:06I think Asia is, you know I've arrived a few months ago to live in Asia and so you look
01:11into statistics of the region and you can't but be impressed.
01:14I mean Asia represents 35% of global GDP, almost half the population, it's growing on
01:21average about 4.5% compared to maybe Europe 1%, the U.S. 2.5%.
01:26So overall a region with tremendous opportunity.
01:30Within that India is one of the key focus areas for investors because it has so much
01:36growth potential, done so well over the last 10 years and still has so much to offer in
01:40the next decades.
01:42So India is a key pillar of our growth strategy in Asia.
01:46Last five years have been great for the Indian market and J.P.Morgan, how do you see India
01:53performance vis-à-vis China because that's a comparison which has been used in the Asian
01:58marketplace?
01:59Yeah, maybe to start with China, I think obviously there's a lot of sort of headlines on China
02:05but we can't forget the journey they've been on.
02:09In 2000 they were 4% of global GDP, they made up about 14% of APEX GDP.
02:16Today they're 20% of the world's GDP and they're more than half of Asia's GDP.
02:20So they've had their growth spurt but it's clear that when you are so big to sustain
02:26that growth is difficult and also the drivers of China's growth will have to change.
02:32It was a lot about manufacturing and export, then about the sort of e-commerce industry
02:38and the question is what's going to be the next decade for China, what's going to drive
02:43its growth.
02:44So China I think will continue to be a big driver of absolute growth but at a slower
02:50rate than before.
02:51In a sense India has been embarking on a similar journey of growing 6, 7, 8% and we see every
03:00possibility for this country to continue to do that in the next 5 to 10 years.
03:03How do you see China, you spoke briefly about the fact that it's slowing but it's still
03:09growing in that sense.
03:11How do you see what the next 10 years is going to be, is there going to be a shift
03:15in the way the China growth is going to play out and if that's so how will India be able
03:21to replace that or take up the space that's been left behind by China?
03:28Yeah I think everyone is trying to figure out what is going to be the next driver of
03:32growth for China.
03:35I think that the government needs to really regain a little bit the confidence of the
03:44investor.
03:45I think they've been changing a little bit the guidance on the market, they've intervened
03:50on a number of occasions with some regulation and I think it's taken away a little bit of
03:55the visibility and predictability for investors.
03:58When you think about investing around the world what you want is you want to know the
04:01rules of the game, you want to know the landscape and I think that confidence has to be regained
04:08a little bit.
04:09Obviously everyone is hoping that the domestic consumption is going to increase because the
04:14export-led economy is getting pushback from the world so it really has to come from domestic
04:20and so the government has to really put incentives in place to stimulate that.
04:25There is the real estate situation which in any country is always it can drive growth,
04:30it can dampen growth and they're on the wrong side of that equation for the time being.
04:37As to India, obviously there is clear diversification going on away from China in the China plus
04:45one or China plus two and I think India has had its benefits from it as has Southeast
04:51Asia for example but overall we feel that India can take a lot more of that upside and
04:58that has to do with becoming a bigger part of the global value chain.
05:03They're very good at services and the government is doing a lot to put it on the map in the
05:07manufacturing space and I think we've seen a lot of progress but as of yet that is not
05:13yet generating as much to growth as it will be in the future.
05:17When you look at the policy from an India point of view, do you see much more clarity
05:23coming in the way the direction and how the government is pushing on making India and
05:28as you mentioned China plus one or China plus two and India is fitting in beautifully in
05:32that narrative?
05:35It should and it is and it will increasingly do so.
05:39I think the government is essentially putting the building blocks in place to do more of
05:42that but it is very complex, the whole global supply chain.
05:47So to insert yourself into that in certain industries is not a one year thing, it is
05:53a multi-year thing.
05:54But the government, if you look at what they're doing in physical infrastructure and building
05:57more than 10,000 kilometers of roads, if you see what they're doing on the digital infrastructure,
06:02if you see what they're doing in deregulation and simplification of laws, then all these
06:07things will greatly contribute to a manufacturing boom that I think is going to come and that
06:14will set India up to become a bigger contributor to the whole global value chain than it is
06:20today.
06:22We've seen India's weightage in the MSCI go up and is almost at par with China, especially
06:30in the emerging market index.
06:33Do you see that India, given the kind of flows that's coming in and given the kind of domestic
06:38flows that's also pushing the stock market prices, India's weightage may overtake China
06:47going forward?
06:49I think today India is more than 20% of the emerging markets global index.
06:55I think China is probably 23%, 24%.
06:57So they're getting very close.
06:59And if you look at the number of companies coming to the market in India compared to
07:03China at the moment, and the sort of free-float increase that is happening in certain stocks,
07:09then I would expect the weight of India to continue to grow, in a sense commensurate
07:14with its GDP growth and maybe more than that.
07:18So I wouldn't exclude the possibility at all that it will overtake China.
07:23Overall the Indian equity market has been fantastic to watch.
07:27We have probably around 50 billion of supply this year, IPOs, secondary offerings, and
07:33that's against the backdrop where the world hasn't been particularly kind on equity offerings.
07:38If you look at the world, equity indices are actually quite high, but the ability to put
07:42new supply in the market hasn't been that easy in Europe or in the US.
07:47India is one of the few real exceptions, so I think we may see as much as 250 offerings
07:53this year, and the volumes this year have already exceeded the year-to-date numbers
07:58from last year.
08:00And that's what the focus of JPMorgan would be in India, to focus on new IPOs and new
08:04issues coming in?
08:05Well, I think we have a lot of things to focus on in India, and that includes investment
08:10banking, what is corporate banking.
08:12We have a big equities trading business.
08:14We provide custody services, we're the third largest custodian domestically.
08:21So there is a lot to set ourselves up for.
08:24There's new developments like Gift City that we're making sure we're investing enough in
08:28capabilities there to service the clients that want to use Gift City.
08:33But with respect to investment banking, I think equity has been the highlight.
08:38Overall the wallet in the opportunity set for investment banks has grown by about 50%
08:43this year in India, but it's particularly been dominated by the equity activity.
08:48And there we have a big role to play to tell the story of companies and to bring them to
08:53the markets.
08:55And then on the M&A, I think there is definitely a lot of dialogue, both Indian companies trying
09:02to use their profitability to build out their business, add capabilities.
09:09And for international companies, they're obviously in the boards really spending a lot of time
09:13in India.
09:14You've been a veteran of corporate banking and recently you merged commercial banking
09:20and investment banking globally as well because of the acquisitions that you did in the US.
09:26Give me a sense of where are you on corporate banking in India and what is your focus going
09:30to be in India for that?
09:33There's always two sides to corporate banking.
09:35There's the domestic companies, helping them largely to go around the world.
09:40And then there's the international companies coming to India.
09:43And I would say that the business has been so far dominated by international companies
09:48coming to India.
09:50They want to be here, they need help in navigating the market, managing their cash, managing
09:54other risks.
09:55So it's been a very, very buoyant business with a significant growth in number of companies
10:00coming to this market.
10:03When you look at domestic Indian companies, the domestic market is very big.
10:08So a lot of them have been historically focusing on the domestic market.
10:13And more and more you see them go abroad and that extends now to a larger group of clients
10:17than before.
10:18So it used to be the big caps, maybe going abroad.
10:21But as the world globalizes, I think a number of mid-sized companies are also needing services
10:28in Europe, in the US, in Latin America, in Southeast Asia.
10:31So we've definitely extended our coverage of these clients to help them navigate the
10:36globe.
10:37What about mid-sized companies?
10:40What we saw is in the last two years, the kind of mid-sized companies and the valuations
10:45that they have got or the market cap increase that have happened in these companies, they've
10:49got included into many overseas or global indices.
10:54And now they are looking at overseas market, as you said.
10:59Do you see a big opportunity for yourself?
11:01And are you setting up a mid-sized company's desk or segment here in India to cater to
11:09that kind of growing demand for companies looking overseas?
11:12100%.
11:13Yeah.
11:14We are very focused on the commercial bank, as we call it, which is mid-sized companies.
11:19So we're trying to cover the founders of these businesses and we try to help them navigate
11:23the world as they become global players.
11:26I think that's partly why investors are at this conference.
11:28It's a segment they don't know as well.
11:31They know the big, famous Indian companies.
11:33They don't know that whole segment of next-level mid-sized companies.
11:37And they're going to actually drive a lot of the growth and opportunity.
11:41So both us as a bank, but also our clients are very focused on that segment.
11:46So my last question to you was, you know, we have seen the Fed hike, the Fed rate cut
11:52that happened last week.
11:55And everyone is asking this question about what is it for Asian countries and emerging
12:01markets as a whole.
12:02How do you see that change impacting countries in the Asia-Pacific region where you manage
12:10many of the countries?
12:12I think the Fed rate cut was important.
12:15It's important for the U.S. to manage the slowing growth into a soft landing.
12:21And we think there's every chance to be able to do that.
12:25But you're right to point out it's very, very important for Asia and for the global South
12:29in general.
12:31The rate environment in the U.S. and the strength of the dollar has really impaired the capital
12:36flows into emerging markets.
12:38So as that comes down, the likelihood that some of the money will find its way into Southeast
12:44Asia, into India, will increase significantly.
12:49Because remember, in India, for example, a lot of the equity flows this year have been
12:52domestic funds, like 80% has been domestic.
12:55So in a sense, the interactions are very, very interesting, but the money hasn't yet
12:59moved in size.
13:00So I think the rate cut will help to redirect those flows.
13:04So I'm excited about that.
13:05So, you know, when you mentioned that 80% is domestic flows and the remaining coming
13:10in mainly into new IPOs and issues, do you see the valuations for many of the Indian
13:17companies now saturated and the opportunity now coming into the new paper, which is coming
13:22into the market?
13:23There's a lot of debate about the valuations in India.
13:26They're sort of in the mid-20s.
13:30When you put it into context with the rest of the world, like the U.S., it's probably
13:32in the high teens.
13:33But if you look at the difference in growth rate, 2.5% in the U.S., 6%, 7% here in India,
13:40then if you fast forward a few years, these valuations are actually quite reasonable for
13:46the growth that you're going to get.
13:48So we don't personally think that the valuations are in territories that are bubble territory.
13:56So I'm hopeful that people will continue to provide these valuations to companies.
14:01And it will also drive companies to monetize the opportunity through IPOs, through sell-downs.
14:07So hopefully we'll get more and more companies to come to market and investors will continue
14:10to buy even at these levels.
14:13Surely not.
14:14Thank you very much for joining us on NDTV Profit.
14:17It was a pleasure talking to you today.
14:18Thank you for having me.