1 00:00:05,849 --> 00:00:08,670 Speaker 1: Welcome to Kobe Time, a podcast series on Markets and 2 00:00:08,680 --> 00:00:11,789 Speaker 1: Economies from D BS Group Research. I'm Femur, big chief economist, 3 00:00:11,970 --> 00:00:15,270 Speaker 1: welcoming you to our 141st episode. 4 00:00:15,739 --> 00:00:19,920 Speaker 1: Today we are recording this in Mumbai, India's financial capital. 5 00:00:20,129 --> 00:00:24,799 Speaker 1: And appropriately enough, we will focus today on Indian financial markets. 6 00:00:25,030 --> 00:00:27,709 Speaker 1: Ashish Gupta is Cio of Axis Mutual Fund, one of 7 00:00:27,719 --> 00:00:31,069 Speaker 1: the largest and fastest growing asset management companies in India 8 00:00:31,290 --> 00:00:34,139 Speaker 1: before joining Axis in 2023 Ashish was the head of 9 00:00:34,150 --> 00:00:37,439 Speaker 1: India Equity Research at Great Suez, a veteran of financial 10 00:00:37,450 --> 00:00:39,950 Speaker 1: sector research. He was well ahead of the curve back 11 00:00:39,959 --> 00:00:40,759 Speaker 1: in 2011 12 00:00:40,979 --> 00:00:43,840 Speaker 1: to flag Indian banks, asset quality issues. Those of us 13 00:00:43,848 --> 00:00:45,939 Speaker 1: in the know, we read those house of debt papers. 14 00:00:46,330 --> 00:00:47,720 Speaker 1: Ish Gupta. Welcome to K Time. 15 00:00:47,848 --> 00:00:50,708 Speaker 2: Thank you for having me and thanks to D BS 16 00:00:50,720 --> 00:00:51,450 Speaker 2: for this platform. 17 00:00:51,549 --> 00:00:51,939 Speaker 1: It's 18 00:00:51,950 --> 00:00:53,589 Speaker 1: great to have you here. You know, you have a 19 00:00:53,598 --> 00:00:55,720 Speaker 1: bunch of fans in Singapore. They are all looking forward 20 00:00:55,729 --> 00:00:56,860 Speaker 1: to this conversation. 21 00:00:57,819 --> 00:00:59,889 Speaker 1: Um Let's start with the 22 00:01:00,689 --> 00:01:05,190 Speaker 1: here and now the tremendously buoyant financial market conditions that 23 00:01:05,199 --> 00:01:07,150 Speaker 1: we're seeing in India, give us a sense of where 24 00:01:07,160 --> 00:01:08,180 Speaker 1: you see things 25 00:01:08,900 --> 00:01:15,669 Speaker 2: I think India, like most places globally has been beneficiaries 26 00:01:15,680 --> 00:01:22,269 Speaker 2: of really the turnaround in the economy and financialization post COVID, right? 27 00:01:22,580 --> 00:01:28,709 Speaker 2: And we've actually had an unprecedented run literally. Now, I 28 00:01:28,720 --> 00:01:31,870 Speaker 2: think we are in the ninth year where we have 29 00:01:31,879 --> 00:01:36,360 Speaker 2: seen every year positive return in the market. Uh What 30 00:01:36,370 --> 00:01:40,519 Speaker 2: has also happened over this period is that 31 00:01:40,970 --> 00:01:45,610 Speaker 2: the Indian markets are getting more and more driven by 32 00:01:45,620 --> 00:01:49,839 Speaker 2: domestic demand. And if you look at the stats over 33 00:01:49,849 --> 00:01:52,919 Speaker 2: the last four or five years, it's quite amazing, right? 34 00:01:52,930 --> 00:01:58,279 Speaker 2: So if you look in the number of equity market investors, right? 35 00:01:59,360 --> 00:02:03,470 Speaker 2: And if memories of me, right, in 2020 there were 36 00:02:03,680 --> 00:02:08,539 Speaker 2: 50 million today, they are more than 100 million, right? 37 00:02:08,889 --> 00:02:13,770 Speaker 2: If you look at our business, which is the mutual funds, 38 00:02:13,779 --> 00:02:18,239 Speaker 2: domestic mutual funds, uh 2020 they were a little over 39 00:02:18,250 --> 00:02:23,339 Speaker 2: 20 million today. There are nearly 50 million investors. So really, 40 00:02:23,350 --> 00:02:29,190 Speaker 2: I think we have seen a big vilation happening in 41 00:02:29,199 --> 00:02:34,809 Speaker 2: the market. Equity market flows have been buoyant, but they 42 00:02:34,820 --> 00:02:37,320 Speaker 2: have been very very well distributed, right? 43 00:02:37,630 --> 00:02:43,690 Speaker 2: So the typical ticket size of our investment coming into 44 00:02:43,699 --> 00:02:49,758 Speaker 2: the mutual fund today is about ₹28,000 which is less 45 00:02:49,770 --> 00:02:55,250 Speaker 2: than $400 right? So, so I think the fact that 46 00:02:55,258 --> 00:03:00,910 Speaker 2: India has had large numbers had never really meant anything 47 00:03:00,919 --> 00:03:06,050 Speaker 2: to the market and particularly equity markets, right? 48 00:03:06,330 --> 00:03:11,750 Speaker 2: And people used to treat equity markets very tactically 49 00:03:12,160 --> 00:03:15,679 Speaker 2: that ok, this year, they looking good election is going 50 00:03:15,690 --> 00:03:18,779 Speaker 2: to happen or is the market going to go up 51 00:03:18,788 --> 00:03:22,559 Speaker 2: for the next six months? Nine months? So that, but 52 00:03:22,570 --> 00:03:27,059 Speaker 2: now it's actually started becoming an investment allocation decision, right? 53 00:03:27,070 --> 00:03:30,199 Speaker 2: So people are saying that ok, X percentage of my 54 00:03:30,210 --> 00:03:33,720 Speaker 2: savings every month or X percentage of my income every 55 00:03:33,729 --> 00:03:35,479 Speaker 2: month is going to be allocated 56 00:03:37,539 --> 00:03:42,050 Speaker 2: and you would have seen the numbers, right? So literally 57 00:03:42,059 --> 00:03:49,300 Speaker 2: every month there's almost $4 billion of sorry $3 billion 58 00:03:49,309 --> 00:03:52,509 Speaker 2: of these si money coming in 59 00:03:53,139 --> 00:03:57,240 Speaker 2: aggregate inflow into mutual fund is about net inflow is 60 00:03:57,250 --> 00:04:01,630 Speaker 2: about $4 billion a month. And we have seen this 61 00:04:01,639 --> 00:04:07,630 Speaker 2: number steadily increase only and again, since pandemic, this number 62 00:04:07,639 --> 00:04:10,639 Speaker 2: has more than doubled. So I think that's really created 63 00:04:10,649 --> 00:04:15,750 Speaker 2: this buoyancy, feel good factor. The good thing is that 64 00:04:15,759 --> 00:04:21,109 Speaker 2: the market till now or till recently has been supported 65 00:04:21,119 --> 00:04:21,630 Speaker 2: by 66 00:04:21,980 --> 00:04:27,920 Speaker 2: a corporate performance and earnings in the economy. So if 67 00:04:27,928 --> 00:04:33,359 Speaker 2: I see last three years market c has been about 68 00:04:33,369 --> 00:04:37,589 Speaker 2: 23 24% the earnings K has also been in the 69 00:04:37,600 --> 00:04:40,880 Speaker 2: similar magnitude, right? Of course, it's not to say that 70 00:04:40,890 --> 00:04:45,130 Speaker 2: there are not pockets of froth in the market, but 71 00:04:45,140 --> 00:04:47,170 Speaker 2: very broad, 72 00:04:48,790 --> 00:04:54,329 Speaker 2: broad benchmarks have till recently actually performed in line with 73 00:04:54,339 --> 00:04:58,149 Speaker 2: how the economy has grown and earnings for corporate India 74 00:04:58,160 --> 00:05:00,839 Speaker 2: have grown. So I think that's good. But we are 75 00:05:00,850 --> 00:05:05,380 Speaker 2: seeing actually literally every asset class of real estate in 76 00:05:05,390 --> 00:05:10,040 Speaker 2: India is booming and the other big pocket of savings 77 00:05:10,049 --> 00:05:13,488 Speaker 2: in India for the household is gold. So all these 78 00:05:13,500 --> 00:05:17,209 Speaker 2: the asset classes have done very, very well, simultaneously, 79 00:05:17,640 --> 00:05:21,140 Speaker 1: very impressive. I'll give you an anecdotal evidence. Last night. 80 00:05:21,149 --> 00:05:24,709 Speaker 1: When I arrived at Mumbai airport, the immigration officer asked 81 00:05:24,720 --> 00:05:27,309 Speaker 1: me about investment strategy. He wanted to know which stocks 82 00:05:27,320 --> 00:05:29,470 Speaker 1: to buy and which mutual funds to buy. I told 83 00:05:29,480 --> 00:05:30,979 Speaker 1: him in general and then they asked me no, no 84 00:05:30,988 --> 00:05:33,510 Speaker 1: specifically which fund to buy. So that sort of tells 85 00:05:33,519 --> 00:05:35,220 Speaker 1: you about the exuberance in the 86 00:05:35,700 --> 00:05:38,459 Speaker 2: I don't know whether we should be happy or scared 87 00:05:38,510 --> 00:05:39,820 Speaker 2: about these anecdotes, 88 00:05:39,829 --> 00:05:42,630 Speaker 1: right? So in terms of, you know, whether to be 89 00:05:42,640 --> 00:05:46,260 Speaker 1: happy or cautious, give me a sense of this 90 00:05:46,359 --> 00:05:52,250 Speaker 1: shift toward not spot equities but futures and options and 91 00:05:52,260 --> 00:05:53,980 Speaker 1: and I've seen some stories about it. So give me 92 00:05:53,988 --> 00:05:55,109 Speaker 1: a sense of what's happening there. 93 00:05:55,510 --> 00:06:00,920 Speaker 2: So I think what has happened in India like other 94 00:06:00,928 --> 00:06:06,260 Speaker 2: places globally is that the futures and options market has 95 00:06:06,269 --> 00:06:12,859 Speaker 2: also taken off particularly since pandemic. I think proliferation of 96 00:06:12,869 --> 00:06:14,980 Speaker 2: social media has also contributed. 97 00:06:15,238 --> 00:06:21,040 Speaker 2: And the third is really digitization and really very easy 98 00:06:21,049 --> 00:06:25,399 Speaker 2: to use apps, right? And what that has meant is 99 00:06:25,410 --> 00:06:29,659 Speaker 2: that these are these products and one particular product in particular, 100 00:06:29,670 --> 00:06:36,480 Speaker 2: which is the index options and as more differentiated products 101 00:06:36,488 --> 00:06:43,130 Speaker 2: were introduced, we got weekly expires of indexes and within 102 00:06:43,140 --> 00:06:45,059 Speaker 2: that on the expiry date, 103 00:06:45,399 --> 00:06:48,190 Speaker 2: right? Because the time value of the option is very 104 00:06:48,200 --> 00:06:52,369 Speaker 2: very low. Uh The premium to the notional value comes 105 00:06:52,380 --> 00:06:57,070 Speaker 2: down to really a minuscule amount. And in fact, the 106 00:06:57,079 --> 00:07:03,719 Speaker 2: imputed leverage if you are trading this index option on 107 00:07:03,730 --> 00:07:07,428 Speaker 2: the expiry day in the afternoon and option value will 108 00:07:07,440 --> 00:07:10,950 Speaker 2: go to zero because that value goes to zero. 109 00:07:12,019 --> 00:07:15,950 Speaker 2: The leverage on offer is as much as 405 100 110 00:07:15,959 --> 00:07:19,890 Speaker 2: times the premium type. So that is attracting a lot 111 00:07:19,899 --> 00:07:24,709 Speaker 2: of detail punting and what I call lottery like investing 112 00:07:24,720 --> 00:07:28,489 Speaker 2: in the paper I wrote on this was called Gamification 113 00:07:28,500 --> 00:07:34,609 Speaker 2: of equity markets, right? And we saw nearly four x 114 00:07:34,619 --> 00:07:38,250 Speaker 2: increase in these option traders. And 115 00:07:38,640 --> 00:07:43,019 Speaker 2: literally all this trading just happens on the expiry day, right? 116 00:07:43,279 --> 00:07:48,549 Speaker 2: And Sebi also published papers on this highlighting that in 117 00:07:48,559 --> 00:07:53,160 Speaker 2: many of these indexes, as much as 96% of trading 118 00:07:53,170 --> 00:07:55,070 Speaker 2: happens on the expiry day, 119 00:07:55,420 --> 00:07:59,399 Speaker 2: about 30 40% of the trading happened just in the 120 00:07:59,410 --> 00:08:02,829 Speaker 2: last hour. And really that just shows because that is 121 00:08:02,839 --> 00:08:07,390 Speaker 2: the time when the leverage is highest, right? And like 122 00:08:07,399 --> 00:08:11,309 Speaker 2: uh P right, you get instant gratification, you make a 123 00:08:11,320 --> 00:08:13,470 Speaker 2: pot within half an hour, you know whether you have 124 00:08:13,480 --> 00:08:18,859 Speaker 2: made money or not and the numbers they have just 125 00:08:18,869 --> 00:08:23,059 Speaker 2: been staggering, right? If you look in terms of notional value, 126 00:08:24,059 --> 00:08:24,739 Speaker 2: the 127 00:08:25,390 --> 00:08:32,500 Speaker 2: amount of these options notional was nearly 500 times the 128 00:08:32,510 --> 00:08:36,200 Speaker 2: cash market volume. So over the last four or five years, 129 00:08:36,210 --> 00:08:40,000 Speaker 2: even though the cash market has grown, this has grown 130 00:08:40,010 --> 00:08:43,739 Speaker 2: at a multiple of that. And that just tells you 131 00:08:43,750 --> 00:08:46,939 Speaker 2: that not all the activity or actually most of the 132 00:08:46,950 --> 00:08:50,909 Speaker 2: activity is not being done for hedging purposes. But there 133 00:08:50,919 --> 00:08:53,409 Speaker 2: is just some other motivation. 134 00:08:53,809 --> 00:08:58,348 Speaker 2: Again, the regulator has been quite on the point about 135 00:08:58,359 --> 00:09:02,559 Speaker 2: two years ago, they published a paper showing that 90% 136 00:09:02,570 --> 00:09:07,099 Speaker 2: of the people doing these options actually lose money, right? 137 00:09:07,320 --> 00:09:13,130 Speaker 2: And magnitude of losses in aggregate are not miniscule, right? 138 00:09:13,140 --> 00:09:17,900 Speaker 2: So if I recollect correctly, households are leaving are losing 139 00:09:17,909 --> 00:09:18,950 Speaker 2: about 140 00:09:20,460 --> 00:09:25,419 Speaker 2: 7 $8 billion annually doing this, right? So there are 141 00:09:25,429 --> 00:09:30,549 Speaker 2: staggering losses that are happening. But the interesting part is 142 00:09:30,559 --> 00:09:34,719 Speaker 2: that despite the losses, 70% of people are still doing 143 00:09:34,729 --> 00:09:37,319 Speaker 2: these options. So that just tells you that this is 144 00:09:37,330 --> 00:09:42,710 Speaker 2: not an investment behavior, but it is for the want 145 00:09:42,719 --> 00:09:44,799 Speaker 2: of a better word, a gambling instinct 146 00:09:45,190 --> 00:09:51,099 Speaker 2: and the regulator has since taken cognizance of this. The 147 00:09:51,109 --> 00:09:54,440 Speaker 2: central bank has taken cognizance of this. They are trying 148 00:09:54,450 --> 00:09:59,520 Speaker 2: to monitor whether unsecured consumer loans are going into these activities. 149 00:09:59,530 --> 00:10:04,949 Speaker 2: They have, you would recall last October this quake there. 150 00:10:05,469 --> 00:10:11,718 Speaker 2: The capital market regulator has come out and increased 151 00:10:13,190 --> 00:10:16,429 Speaker 2: some of the notional value of the options. They are 152 00:10:16,440 --> 00:10:20,489 Speaker 2: limiting the number of weekly expires that are there. So 153 00:10:20,500 --> 00:10:25,710 Speaker 2: regulators are trying to curb this instinct. So so that 154 00:10:25,719 --> 00:10:29,500 Speaker 2: there is no macro or even like this that build out. 155 00:10:30,460 --> 00:10:32,380 Speaker 1: One could argue that people have the right to lose 156 00:10:32,390 --> 00:10:35,809 Speaker 1: money if they want to take a bet. There should 157 00:10:35,820 --> 00:10:38,080 Speaker 1: be two way outcomes. It should not be just one 158 00:10:38,090 --> 00:10:40,520 Speaker 1: way and the regulator should not just try to protect 159 00:10:40,530 --> 00:10:41,150 Speaker 1: the downside 160 00:10:41,880 --> 00:10:46,179 Speaker 1: unless they're being subject to misinformation. Misselling. So, was there 161 00:10:46,190 --> 00:10:48,820 Speaker 1: an element of very aggressive marketing that led to this 162 00:10:48,830 --> 00:10:49,819 Speaker 1: phenomenon taking off? 163 00:10:50,000 --> 00:10:54,530 Speaker 2: Ok. So there are kind of 23 context to this, right? 164 00:10:54,750 --> 00:11:00,960 Speaker 2: So one is what's regulators though, right? Is it a 165 00:11:00,969 --> 00:11:04,000 Speaker 2: nanny state or not? Right. So clearly, you don't want 166 00:11:04,010 --> 00:11:06,020 Speaker 2: to be a nanny state, people are free to make 167 00:11:06,030 --> 00:11:06,858 Speaker 2: a decision, right? 168 00:11:07,280 --> 00:11:12,739 Speaker 2: But you also want orderly development of the capital market, right? 169 00:11:12,989 --> 00:11:16,619 Speaker 2: So one part of it does this lead to build 170 00:11:16,630 --> 00:11:19,250 Speaker 2: up of any macro this for the market. And there 171 00:11:19,260 --> 00:11:22,099 Speaker 2: they were already probably ahead of the curve, they had 172 00:11:22,109 --> 00:11:25,830 Speaker 2: tightened the margin requirements, et cetera. But having said that 173 00:11:26,099 --> 00:11:29,760 Speaker 2: just the fact that this market was so much bigger 174 00:11:29,770 --> 00:11:31,909 Speaker 2: than the cash market could mean 175 00:11:31,994 --> 00:11:34,974 Speaker 2: that there are tail this that can get created, right? 176 00:11:34,984 --> 00:11:38,534 Speaker 2: So we have seen globally in many instances where the 177 00:11:38,715 --> 00:11:42,974 Speaker 2: CD market, et cetera that if you let the derivatives 178 00:11:42,984 --> 00:11:47,414 Speaker 2: market grow bigger, it can result in a situation where 179 00:11:47,424 --> 00:11:51,114 Speaker 2: the tail backs the dog, right? Because derivative actually needs 180 00:11:51,125 --> 00:11:54,135 Speaker 2: to derive its price from the underlying rather than that 181 00:11:54,145 --> 00:11:56,694 Speaker 2: market driving what is happening here. 182 00:11:57,250 --> 00:12:01,260 Speaker 2: But I think there is another angle even if we 183 00:12:01,270 --> 00:12:04,340 Speaker 2: ignore the macro risk, right. If you look at the 184 00:12:04,349 --> 00:12:08,780 Speaker 2: micro risk, right? It's very difficult to say that whether 185 00:12:08,789 --> 00:12:16,340 Speaker 2: there is Miell, whether there is misinformation and also whether 186 00:12:16,349 --> 00:12:22,900 Speaker 2: in a society like India, what is 187 00:12:24,729 --> 00:12:29,479 Speaker 2: the level at which there should be intervention by the regulator? Right? 188 00:12:29,489 --> 00:12:32,859 Speaker 2: So if the investor is not an informed investor, so 189 00:12:32,869 --> 00:12:36,619 Speaker 2: if you look and I think Singapore also had this 190 00:12:36,630 --> 00:12:37,750 Speaker 2: concept of quid, 191 00:12:38,919 --> 00:12:42,349 Speaker 2: so you try to say that is the investor informed 192 00:12:42,359 --> 00:12:47,409 Speaker 2: enough to be taking these. And as of now in India, 193 00:12:47,419 --> 00:12:50,460 Speaker 2: for option trading, that is not there, right? It is 194 00:12:50,469 --> 00:12:56,859 Speaker 2: very difficult to. So when the regulator thought about how 195 00:12:56,869 --> 00:12:59,228 Speaker 2: to control this, you can say, ok, should I put 196 00:12:59,239 --> 00:13:02,489 Speaker 2: a net worth criteria? Should I put a knowledge criteria? 197 00:13:02,789 --> 00:13:05,719 Speaker 2: But if you do that, it's very difficult to implement 198 00:13:05,729 --> 00:13:11,090 Speaker 2: and monitor, right? And if you see the demographic profile 199 00:13:11,099 --> 00:13:14,559 Speaker 2: of the people who are doing this option trading, it 200 00:13:14,570 --> 00:13:18,598 Speaker 2: is actually very different from even the mutual fund investors 201 00:13:18,609 --> 00:13:24,299 Speaker 2: in India, right? So for mutual funds, investors in India, 202 00:13:24,309 --> 00:13:30,059 Speaker 2: about 60% come from the top 20 cities, 203 00:13:30,429 --> 00:13:34,109 Speaker 2: the average age is about close to 40. Of course, 204 00:13:34,119 --> 00:13:37,229 Speaker 2: it is getting younger. But a large corpus comes from this. 205 00:13:37,239 --> 00:13:40,250 Speaker 2: If you look at the fend of traders, the majority 206 00:13:40,260 --> 00:13:45,150 Speaker 2: of them are under 25 most of them are coming 207 00:13:45,179 --> 00:13:51,848 Speaker 2: from some of the more economically backward states, etc, right? 208 00:13:52,039 --> 00:13:52,939 Speaker 2: And 209 00:13:53,109 --> 00:13:57,729 Speaker 2: so theres a huge disconnect right that people who are 210 00:13:57,739 --> 00:14:01,530 Speaker 2: investing in stocks directly mutual funds are coming from a 211 00:14:01,559 --> 00:14:04,940 Speaker 2: different demographic and people who are doing this option trading 212 00:14:05,109 --> 00:14:10,479 Speaker 2: is coming from a different demographic. So I think there 213 00:14:10,650 --> 00:14:13,929 Speaker 2: is a big disconnect. I think we are a young 214 00:14:13,940 --> 00:14:15,539 Speaker 2: country and I think 215 00:14:15,710 --> 00:14:21,210 Speaker 2: or multi year capital market development, we need young investors 216 00:14:21,219 --> 00:14:24,349 Speaker 2: to have a good experience of the market, right? And 217 00:14:24,359 --> 00:14:28,099 Speaker 2: I think it will be very unfortunate that if the 218 00:14:28,109 --> 00:14:33,969 Speaker 2: younger generation, their capital market experience in the initial years 219 00:14:33,979 --> 00:14:38,349 Speaker 2: gets colored by what they experience on this option trading, 220 00:14:39,229 --> 00:14:45,289 Speaker 2: I think they might kind of shy away from it completely. 221 00:14:45,890 --> 00:14:48,659 Speaker 1: This is absolutely fascinating. I see a parallel between the 222 00:14:48,669 --> 00:14:51,869 Speaker 1: Gamification narrative we saw in the US with the meme 223 00:14:51,880 --> 00:14:54,229 Speaker 1: stocks and so on again, very much a very young 224 00:14:54,239 --> 00:14:55,909 Speaker 1: demographic phenomenon there. Yes. 225 00:14:56,119 --> 00:15:03,539 Speaker 2: And the unfortunate part is that yes, expiry day options 226 00:15:03,549 --> 00:15:05,270 Speaker 2: became popular there as well, 227 00:15:05,630 --> 00:15:10,299 Speaker 2: but India has become the largest market. And in fact, 228 00:15:11,140 --> 00:15:16,039 Speaker 2: I have debated this or thought about this with multiple 229 00:15:16,049 --> 00:15:19,010 Speaker 2: people and why it has taken off so much in 230 00:15:19,020 --> 00:15:23,969 Speaker 2: India compared to other markets because expiry day options are 231 00:15:23,979 --> 00:15:27,969 Speaker 2: not just unique to, right? But I think perhaps the 232 00:15:27,979 --> 00:15:29,270 Speaker 2: reason is that 233 00:15:30,229 --> 00:15:36,289 Speaker 2: in India, this is the only legal form of gambling. 234 00:15:37,390 --> 00:15:40,250 Speaker 1: I see. Yeah. Well put, I think China has struggled 235 00:15:40,260 --> 00:15:41,710 Speaker 1: with this issue as well. And as you've seen, there 236 00:15:41,719 --> 00:15:43,549 Speaker 1: has been a lot of regulatory move in the last 237 00:15:43,559 --> 00:15:45,729 Speaker 1: four or five years to take away some of these 238 00:15:45,739 --> 00:15:47,369 Speaker 1: tools from people to speculate. 239 00:15:48,469 --> 00:15:50,309 Speaker 1: I want to stay with the listed equity space a 240 00:15:50,320 --> 00:15:53,330 Speaker 1: little longer. We've talked about the sort of buoyant flow 241 00:15:53,340 --> 00:15:56,400 Speaker 1: environment we've seen and away from the f at least 242 00:15:56,409 --> 00:16:00,940 Speaker 1: on the spot equities, good flows, good sentiment and it 243 00:16:00,950 --> 00:16:05,679 Speaker 1: is investment, it's not speculation, that's all great pipeline. What's 244 00:16:05,690 --> 00:16:08,390 Speaker 1: been the experience with ipos the last couple of years? 245 00:16:08,400 --> 00:16:09,789 Speaker 1: And what does it look going forward? 246 00:16:09,799 --> 00:16:14,099 Speaker 2: Yeah, so actually I'll kind of broaden the question a 247 00:16:14,109 --> 00:16:15,349 Speaker 2: little bit. So, 248 00:16:16,909 --> 00:16:19,969 Speaker 2: so we have seen over the past four or five 249 00:16:19,979 --> 00:16:23,429 Speaker 2: years as we talked about domestic demand for equities being 250 00:16:23,440 --> 00:16:29,630 Speaker 2: very strong and that is coming both from inflow into 251 00:16:29,640 --> 00:16:32,479 Speaker 2: mutual funds. In addition, they have 252 00:16:32,575 --> 00:16:37,104 Speaker 2: has been increased in flow into insurance companies and pension 253 00:16:37,114 --> 00:16:40,955 Speaker 2: funds because even the government owned pension entity has started 254 00:16:41,034 --> 00:16:46,614 Speaker 2: a few years ago to invest in the market. And 255 00:16:46,625 --> 00:16:50,604 Speaker 2: third with the bonds in the market, there has been 256 00:16:50,614 --> 00:16:54,794 Speaker 2: direct participation of detail also in the market, right? And 257 00:16:54,804 --> 00:16:56,955 Speaker 2: we believe today 258 00:16:57,590 --> 00:17:03,380 Speaker 2: there is about $7 billion of consistent demand for the 259 00:17:03,390 --> 00:17:06,589 Speaker 2: equity that is coming into the market, which is through 260 00:17:06,760 --> 00:17:12,040 Speaker 2: the sips the pension plans, the insurance plans, et cetera 261 00:17:12,050 --> 00:17:14,920 Speaker 2: every month, every month, right? So that is a very 262 00:17:14,930 --> 00:17:15,989 Speaker 2: large number 263 00:17:18,339 --> 00:17:23,149 Speaker 2: and just to give a contact this number last year 264 00:17:23,390 --> 00:17:27,530 Speaker 2: aggregate was kind of about 50 $55 billion. So it's 265 00:17:27,540 --> 00:17:30,099 Speaker 2: kind of stepped up last couple of months to about 266 00:17:30,109 --> 00:17:31,569 Speaker 2: 6 $7 billion right. 267 00:17:31,790 --> 00:17:35,709 Speaker 2: So there is very strong consistent demand that we see. 268 00:17:35,719 --> 00:17:38,910 Speaker 2: And in addition to that, there will always be kind 269 00:17:38,920 --> 00:17:42,859 Speaker 2: of depending on the sentiment, more people will be directly 270 00:17:42,869 --> 00:17:45,939 Speaker 2: investing into equities or more people will kind of do 271 00:17:45,949 --> 00:17:48,010 Speaker 2: lump sum investment into mutual funds. 272 00:17:49,160 --> 00:17:53,670 Speaker 2: Interestingly, foreign investment over this period. So that is another 273 00:17:53,680 --> 00:17:57,699 Speaker 2: large pool of demand and foreign investors actually had been 274 00:17:57,709 --> 00:18:03,339 Speaker 2: very overweight India. So till a few years ago, more 275 00:18:03,349 --> 00:18:07,478 Speaker 2: than 20% of corporate India was owned by foreign investors. 276 00:18:08,530 --> 00:18:12,949 Speaker 2: And that has been there for the last 2530 years. 277 00:18:13,260 --> 00:18:17,910 Speaker 2: But since 2021 22 278 00:18:18,180 --> 00:18:22,688 Speaker 2: they actually have been less so interested in India. And 279 00:18:22,719 --> 00:18:26,540 Speaker 2: I think the principal reason for that has been what 280 00:18:26,550 --> 00:18:29,829 Speaker 2: happened to global cost of capital, which was global, they 281 00:18:29,849 --> 00:18:34,670 Speaker 2: went for the investors kind of pulled back. And if 282 00:18:34,680 --> 00:18:36,639 Speaker 2: I remember correctly, in 283 00:18:36,814 --> 00:18:43,385 Speaker 2: financial year, 2022 foreign investors actually withdrew about $20 billion. 284 00:18:43,635 --> 00:18:49,435 Speaker 2: 2023 was about $5 billion or so didn't source, right? 285 00:18:49,545 --> 00:18:54,265 Speaker 2: And last year, they again came back to India. But 286 00:18:55,844 --> 00:18:59,074 Speaker 2: the interesting thing is foreign investors have been, 287 00:19:00,280 --> 00:19:04,579 Speaker 2: have invested probably in aggregate in the last five years 288 00:19:04,589 --> 00:19:08,079 Speaker 2: or last four years. Only about 10 $15 billion with 289 00:19:08,089 --> 00:19:11,079 Speaker 2: India's weight in the emerging market index has gone from 290 00:19:11,089 --> 00:19:13,869 Speaker 2: about 8% to 18% right. 291 00:19:14,099 --> 00:19:20,020 Speaker 2: And in the global benchmark has gone from less than 2% 292 00:19:20,030 --> 00:19:26,689 Speaker 2: to 3.5%. So foreign investors have actually been becoming more 293 00:19:26,699 --> 00:19:30,270 Speaker 2: and more underweight India. But because there was this large 294 00:19:30,280 --> 00:19:33,449 Speaker 2: pool of domestic demand, your market continued to run 295 00:19:34,020 --> 00:19:38,729 Speaker 2: as market multiples have gone up. We have seen particularly 296 00:19:38,739 --> 00:19:44,229 Speaker 2: in the last 18 months, very sharp increase in what 297 00:19:44,239 --> 00:19:48,349 Speaker 2: I call supply of equity. And you spoke about one 298 00:19:48,359 --> 00:19:53,599 Speaker 2: aspect of it, which is IPOS but interestingly, there has 299 00:19:53,609 --> 00:19:58,640 Speaker 2: been a larger increase in supply coming from Q that 300 00:19:58,650 --> 00:20:03,670 Speaker 2: is secondary primary basis that listed companies do. And 301 00:20:03,920 --> 00:20:08,209 Speaker 2: the other piece is secondary stake sales. So promoters and 302 00:20:08,219 --> 00:20:13,680 Speaker 2: private equity actually selling stakes and interestingly in the last 303 00:20:13,689 --> 00:20:21,849 Speaker 2: eight months. So if I take April 23 to until September, 304 00:20:24,050 --> 00:20:29,430 Speaker 2: the supply of equity has actually outpaced this demand and 305 00:20:29,439 --> 00:20:34,250 Speaker 2: actually been nearly 1.5 times the inflow into mutual fund. 306 00:20:34,420 --> 00:20:37,599 Speaker 2: So while all of us talk about how and we 307 00:20:37,609 --> 00:20:41,650 Speaker 2: also started with that how mutual fund flows have grown 308 00:20:41,660 --> 00:20:45,920 Speaker 2: and become bigger. The fact is that there has been 309 00:20:45,930 --> 00:20:48,439 Speaker 2: very large selling as well. 310 00:20:48,699 --> 00:20:53,379 Speaker 2: And and I think that is what is really determine 311 00:20:53,390 --> 00:20:57,800 Speaker 2: the true market, right? A market is a self correcting animal, right? 312 00:20:57,969 --> 00:21:02,140 Speaker 2: So if demand goes up and price, which is valuation 313 00:21:02,150 --> 00:21:07,599 Speaker 2: goes up, you see supply coming and with valuation going up, 314 00:21:07,609 --> 00:21:08,599 Speaker 2: we have seen 315 00:21:09,150 --> 00:21:13,609 Speaker 2: various forms of supply coming, right? So promoters feel that 316 00:21:13,619 --> 00:21:17,510 Speaker 2: their multiples are high and they kind of take money 317 00:21:17,520 --> 00:21:21,379 Speaker 2: off companies feel that it's a good time to raise 318 00:21:21,390 --> 00:21:24,819 Speaker 2: equity to invest or now even just to build a 319 00:21:24,859 --> 00:21:28,770 Speaker 2: war chest of cash on the books. We have had 320 00:21:28,780 --> 00:21:34,688 Speaker 2: interestingly multinational companies selling down their stakes in Indian companies. 321 00:21:34,699 --> 00:21:36,969 Speaker 2: So in their Indian subsidiaries, right? 322 00:21:37,260 --> 00:21:44,130 Speaker 2: And very recently, we actually had one Korean auto company 323 00:21:44,140 --> 00:21:51,729 Speaker 2: listing the Indian subsidiary and actually paring down their stake 324 00:21:51,739 --> 00:21:55,540 Speaker 2: and taking the money out. And the reason was simple 325 00:21:55,550 --> 00:22:01,270 Speaker 2: that the Indian subsidiary was getting valued at four times 326 00:22:01,280 --> 00:22:02,449 Speaker 2: the multiple 327 00:22:03,045 --> 00:22:06,625 Speaker 2: they were enjoying back home. And now we are hearing 328 00:22:06,635 --> 00:22:09,534 Speaker 2: there are a couple of other Korean majors who are 329 00:22:09,545 --> 00:22:14,655 Speaker 2: looking to do the same, right? So that just shows 330 00:22:14,665 --> 00:22:19,704 Speaker 2: that in today's world money is functional, right? So, so 331 00:22:19,714 --> 00:22:24,114 Speaker 2: if there are valuation disparities, people will look to kind 332 00:22:24,125 --> 00:22:25,744 Speaker 2: of arbitrage it, right? 333 00:22:26,189 --> 00:22:31,040 Speaker 2: And just to give you some numbers last year, we 334 00:22:31,050 --> 00:22:38,349 Speaker 2: saw nearly ₹2 trillion of secondary stake sales by promoters 335 00:22:38,359 --> 00:22:42,229 Speaker 2: and private equity, right? And one question most of the 336 00:22:42,239 --> 00:22:48,250 Speaker 2: economist actually ask is that while the foreign portfolio investment 337 00:22:48,260 --> 00:22:50,738 Speaker 2: story in India is so good, there is China plus 338 00:22:50,810 --> 00:22:51,290 Speaker 2: one 339 00:22:52,199 --> 00:22:56,800 Speaker 2: economy is doing well. FDI in India has not really grown. 340 00:22:57,229 --> 00:22:59,839 Speaker 2: And one of the reason is that this is the 341 00:22:59,849 --> 00:23:03,619 Speaker 2: net FDI number because a lot of private equity, et 342 00:23:03,630 --> 00:23:07,489 Speaker 2: cetera have been selling into this strength of the market 343 00:23:07,500 --> 00:23:08,790 Speaker 2: and taking money out. 344 00:23:09,890 --> 00:23:14,659 Speaker 1: Fascinating. So a juxtaposition of retail demand against institutional 345 00:23:14,670 --> 00:23:15,109 Speaker 1: selling 346 00:23:15,910 --> 00:23:20,670 Speaker 2: and this is actually going to increase. In fact, we 347 00:23:20,680 --> 00:23:26,550 Speaker 2: were looking at these numbers just a couple of weeks 348 00:23:26,560 --> 00:23:29,669 Speaker 2: ago and the pipeline that is there for the next 349 00:23:29,680 --> 00:23:36,780 Speaker 2: six months just in terms of ipos is nearly three X, 350 00:23:36,800 --> 00:23:39,469 Speaker 2: what was there in first of, of this financial year? 351 00:23:40,089 --> 00:23:43,989 Speaker 2: Right. So these numbers are actually becoming larger, right? 352 00:23:44,050 --> 00:23:46,859 Speaker 1: And what has been the experience of the recent ipo's 353 00:23:46,869 --> 00:23:50,660 Speaker 1: first a move and subsequent track 354 00:23:50,670 --> 00:23:51,849 Speaker 1: record. So 355 00:23:51,859 --> 00:23:56,708 Speaker 2: I think over the last 18 months 356 00:23:59,609 --> 00:24:05,829 Speaker 2: ipos and given the retail interest have actually done fairly well, 357 00:24:05,839 --> 00:24:11,209 Speaker 2: there have been typically first day gains, but in most cases, 358 00:24:11,219 --> 00:24:15,390 Speaker 2: post listing, the performance has not been that great as well. 359 00:24:15,689 --> 00:24:19,879 Speaker 2: And I think what also happens is that 360 00:24:20,920 --> 00:24:24,919 Speaker 2: all pre IPO investors are locked in for the period 361 00:24:24,930 --> 00:24:28,890 Speaker 2: of time, right? So the float that is there initially 362 00:24:28,900 --> 00:24:32,188 Speaker 2: is not as large as the total equity base and 363 00:24:32,280 --> 00:24:35,239 Speaker 2: as over time as those lock ins expire, 364 00:24:36,040 --> 00:24:40,329 Speaker 2: whether it is the private equity that is in the 365 00:24:40,339 --> 00:24:43,920 Speaker 2: company that provides more supplies, some of these valuation excess 366 00:24:43,930 --> 00:24:46,670 Speaker 2: is actually a moderate out. 367 00:24:47,260 --> 00:24:53,750 Speaker 1: Why hasn't rbi's hiking of interest rates, not dented margin 368 00:24:53,760 --> 00:24:56,209 Speaker 1: trading and overall equity market sentiment? 369 00:24:56,469 --> 00:25:01,449 Speaker 2: So I think the good thing is that today 370 00:25:01,739 --> 00:25:05,989 Speaker 2: compared to the past, there is not as much leverage 371 00:25:06,000 --> 00:25:11,780 Speaker 2: in the market, right? So the RBI has been very 372 00:25:11,790 --> 00:25:17,560 Speaker 2: prudent for the last few years in terms of allowing 373 00:25:18,630 --> 00:25:21,390 Speaker 2: nbc's to do a lot of 374 00:25:21,494 --> 00:25:25,875 Speaker 2: margin based lending. In fact, banks are literally not allowed 375 00:25:25,885 --> 00:25:31,194 Speaker 2: to do that. The margin requirement is very on this. 376 00:25:31,204 --> 00:25:39,525 Speaker 2: So typically ltv's are nearly four X. So basically LTV 377 00:25:39,535 --> 00:25:41,155 Speaker 2: is only 25%. 378 00:25:41,469 --> 00:25:44,849 Speaker 2: So, so there is not as much leverage that is 379 00:25:44,859 --> 00:25:49,410 Speaker 2: riding into the market. And that is why we have 380 00:25:49,420 --> 00:25:53,589 Speaker 2: seen the stability in the market. So that and one 381 00:25:53,599 --> 00:25:56,589 Speaker 2: sure sign of looking at leverage in the market is 382 00:25:56,599 --> 00:25:58,969 Speaker 2: that if there's a big down day in the 383 00:25:59,050 --> 00:26:01,969 Speaker 2: the market next day is a bigger down day in 384 00:26:01,979 --> 00:26:05,349 Speaker 2: the market, right? Because all the margin calls come, if 385 00:26:05,359 --> 00:26:07,669 Speaker 2: you see the last four or five years, you have 386 00:26:07,680 --> 00:26:10,640 Speaker 2: one down day and next day, actually, there is some 387 00:26:10,650 --> 00:26:15,829 Speaker 2: value buying that emerges. So I find that margin based 388 00:26:17,040 --> 00:26:20,869 Speaker 2: buying in the market has been actually limited. 389 00:26:21,359 --> 00:26:24,129 Speaker 1: That's good to know and this is taking into account 390 00:26:24,140 --> 00:26:27,079 Speaker 1: the 405 100 leverage discussion we had on the 391 00:26:27,319 --> 00:26:27,629 Speaker 1: side. 392 00:26:27,640 --> 00:26:32,238 Speaker 2: So that actually I feel is just a separate animal 393 00:26:32,250 --> 00:26:36,569 Speaker 2: that's actually just operating in a separate bubble of its 394 00:26:36,579 --> 00:26:40,800 Speaker 2: own as you call it. And again, because it is 395 00:26:40,810 --> 00:26:45,369 Speaker 2: primarily just index options. So even if you look at 396 00:26:45,670 --> 00:26:48,810 Speaker 2: single stock option, you have not seen that kind of 397 00:26:48,819 --> 00:26:53,650 Speaker 2: ballooning of volume, et cetera. Those are just those index products, 398 00:26:53,660 --> 00:26:59,160 Speaker 2: weekly products where you see that heightened activity and you 399 00:26:59,170 --> 00:27:01,829 Speaker 2: are not seeing at least as yet any impact of 400 00:27:01,839 --> 00:27:05,030 Speaker 2: that on the underlying benchmarks. 401 00:27:05,500 --> 00:27:08,399 Speaker 1: So is the rising tide of the public listed equities 402 00:27:08,410 --> 00:27:11,420 Speaker 1: also pushing up the private side of the market. Are 403 00:27:11,430 --> 00:27:14,380 Speaker 1: we seeing MS on the private side and private debt 404 00:27:14,390 --> 00:27:15,709 Speaker 1: deals and all those sort of things? 405 00:27:16,239 --> 00:27:24,079 Speaker 2: So I think private debt is growing for other reasons, 406 00:27:24,089 --> 00:27:28,160 Speaker 2: not necessarily because the public market has. And again, this 407 00:27:28,170 --> 00:27:30,909 Speaker 2: is a trend that we have seen globally how large 408 00:27:30,920 --> 00:27:32,859 Speaker 2: private credit markets have grown 409 00:27:33,369 --> 00:27:37,670 Speaker 2: in India, private credit market is still relatively small. So 410 00:27:37,680 --> 00:27:42,310 Speaker 2: despite all the growth we have had, I believe the 411 00:27:42,319 --> 00:27:46,790 Speaker 2: total private credit market is today in India is only 412 00:27:46,800 --> 00:27:52,030 Speaker 2: about $5 billion or so. One interesting thing that has 413 00:27:52,040 --> 00:27:56,030 Speaker 2: happened in the last three years is that the composition 414 00:27:56,040 --> 00:27:58,670 Speaker 2: of providers in the private credit market have changed. 415 00:27:58,930 --> 00:28:02,599 Speaker 2: So until three years ago, it was a few large 416 00:28:02,609 --> 00:28:08,319 Speaker 2: global funds that were very active here as global cost 417 00:28:08,329 --> 00:28:11,829 Speaker 2: of capital rose and Indian yield kind of did not 418 00:28:11,839 --> 00:28:15,708 Speaker 2: go up commensurately, right. So globally cost of capital rose 419 00:28:15,719 --> 00:28:18,569 Speaker 2: by about 500 basis points in India, it went up 420 00:28:18,579 --> 00:28:22,180 Speaker 2: by 100 basis points. So they did not find it 421 00:28:22,219 --> 00:28:24,150 Speaker 2: reative enough, they were kind of 422 00:28:25,229 --> 00:28:29,099 Speaker 2: better yields available in other markets. So we have actually 423 00:28:29,109 --> 00:28:35,369 Speaker 2: seen that shift happening. And so of this $5 billion 424 00:28:35,420 --> 00:28:40,670 Speaker 2: if 60 65% was foreign funds and only about one 425 00:28:40,680 --> 00:28:44,010 Speaker 2: third were domestic today that has kind of shifted and 426 00:28:44,020 --> 00:28:46,530 Speaker 2: about 60% of domestic funds, right? 427 00:28:47,510 --> 00:28:51,380 Speaker 2: So if you look at private credit providers, Indian private 428 00:28:51,390 --> 00:28:55,140 Speaker 2: credit providers, they have had large growth. But the overall 429 00:28:55,150 --> 00:28:59,420 Speaker 2: pie has not grown as much. But I'm actually quite 430 00:28:59,430 --> 00:29:03,349 Speaker 2: optimistic about it because one of the reasons why private 431 00:29:03,359 --> 00:29:06,770 Speaker 2: credit markets globally have done well, has been more and 432 00:29:06,780 --> 00:29:10,540 Speaker 2: more controls coming over the banks. That holds true. Even 433 00:29:10,550 --> 00:29:11,140 Speaker 2: in India, 434 00:29:11,910 --> 00:29:17,619 Speaker 2: another driving factor has been that in India, banks are 435 00:29:17,630 --> 00:29:26,420 Speaker 2: actually not allowed to do several activities globally. Banks, for example, financing, 436 00:29:26,430 --> 00:29:31,469 Speaker 2: we spoke about lending against shares, etcetera. So the rules 437 00:29:31,479 --> 00:29:34,640 Speaker 2: are very restricted for the banks in India. So that 438 00:29:34,650 --> 00:29:38,369 Speaker 2: is another opportunity for private credit because they can take 439 00:29:38,680 --> 00:29:42,469 Speaker 2: multiple types of collateral that is not available for banks 440 00:29:42,479 --> 00:29:48,989 Speaker 2: to take over the past 23 years. Another dimension has 441 00:29:49,000 --> 00:29:53,810 Speaker 2: been what's transpired for non-bank finance companies. So if you 442 00:29:53,819 --> 00:29:57,479 Speaker 2: recall in 2018 19, in India, there was a big 443 00:29:57,489 --> 00:30:02,949 Speaker 2: liquidity crisis for the non-bank companies in India and particularly 444 00:30:02,959 --> 00:30:04,619 Speaker 2: those who were wholesale funded. 445 00:30:04,849 --> 00:30:10,130 Speaker 2: So today for the non-bank company that is giving out 446 00:30:10,140 --> 00:30:13,949 Speaker 2: wholesale loans, the cost of capital is very high and 447 00:30:13,959 --> 00:30:16,880 Speaker 2: primarily cost of equity, right? So the market actually does 448 00:30:16,890 --> 00:30:20,349 Speaker 2: not pay multiple for the N BFC which is into 449 00:30:20,359 --> 00:30:23,969 Speaker 2: wholesale credit compared to the real credit. So most of 450 00:30:23,979 --> 00:30:27,569 Speaker 2: the non-bank providers have shifted to retail products and not 451 00:30:27,579 --> 00:30:28,469 Speaker 2: so much wholesale. 452 00:30:28,760 --> 00:30:31,699 Speaker 2: So that market is also kind of coming more to 453 00:30:31,709 --> 00:30:35,500 Speaker 2: the private credit space. So the opportunity is very large, 454 00:30:35,510 --> 00:30:41,939 Speaker 2: but the aggregate by for private credit is still relatively small. 455 00:30:42,810 --> 00:30:46,310 Speaker 1: If a sort of young entrepreneur is trying to take 456 00:30:46,319 --> 00:30:50,270 Speaker 1: his or her fintech into a larger scale, where do 457 00:30:50,280 --> 00:30:51,030 Speaker 1: they get the funding? 458 00:30:51,800 --> 00:30:55,500 Speaker 2: So, so yeah, so the private equity venture capital market 459 00:30:55,510 --> 00:31:01,579 Speaker 2: is very buoyant in India. I think, I don't know 460 00:31:01,589 --> 00:31:04,800 Speaker 2: how much is the demand for Fint. So I think 461 00:31:04,869 --> 00:31:11,459 Speaker 2: in India and actually even globally, some of the sheen 462 00:31:11,469 --> 00:31:15,750 Speaker 2: has been taken off Fint because you are realizing that 463 00:31:16,170 --> 00:31:23,270 Speaker 2: financial sector is a regulated sector, right? So and actually 464 00:31:23,280 --> 00:31:26,030 Speaker 2: a lot of times the start ups are not so 465 00:31:26,040 --> 00:31:31,520 Speaker 2: good at really kind of a to that I think therefore, 466 00:31:32,900 --> 00:31:36,920 Speaker 2: the larger growth in Fint is actually happening where they 467 00:31:36,930 --> 00:31:39,930 Speaker 2: are more B to b where they are providing solutions 468 00:31:39,939 --> 00:31:45,109 Speaker 2: to banks or other established regulated players, right? 469 00:31:45,449 --> 00:31:50,930 Speaker 2: Consumer F index actually have not had such a great 470 00:31:50,939 --> 00:31:54,729 Speaker 2: time except for the few exceptions, but private equity market, 471 00:31:54,739 --> 00:31:57,380 Speaker 2: venture capital market in India is very buoyant. And I 472 00:31:57,390 --> 00:32:02,709 Speaker 2: think much more so than what you see in Southeast Asia. 473 00:32:02,719 --> 00:32:05,969 Speaker 2: A couple of reasons for that one is that 474 00:32:07,290 --> 00:32:11,349 Speaker 2: India and China are two countries where you have large 475 00:32:11,359 --> 00:32:15,459 Speaker 2: enough middle income base for their products to take off. 476 00:32:15,709 --> 00:32:19,449 Speaker 2: Second in India has been going back to our discussion 477 00:32:19,459 --> 00:32:24,410 Speaker 2: on ipos and the public market buoyancy that people, private 478 00:32:24,420 --> 00:32:26,069 Speaker 2: equity players have been able to see 479 00:32:26,165 --> 00:32:30,944 Speaker 2: exit, right? And I think that's been a big change 480 00:32:30,954 --> 00:32:36,864 Speaker 2: and confidence booster that people are able to see very 481 00:32:36,875 --> 00:32:42,974 Speaker 2: meaningful exits in India. And that's actually leading to recycling 482 00:32:42,984 --> 00:32:44,935 Speaker 2: of a lot more private capital, 483 00:32:46,520 --> 00:32:50,300 Speaker 2: maybe not as much on start up, but late stage 484 00:32:50,310 --> 00:32:54,680 Speaker 2: companies buyouts. So that market is growing. You speak to 485 00:32:54,689 --> 00:33:00,890 Speaker 2: any global private equity player, literally, they are looking to 486 00:33:00,900 --> 00:33:03,469 Speaker 2: grow their business by 2 to 3 years in the 487 00:33:03,479 --> 00:33:04,040 Speaker 2: next five years. 488 00:33:04,829 --> 00:33:10,329 Speaker 2: They say so, but the experience of their exit is very, 489 00:33:10,339 --> 00:33:13,760 Speaker 2: very meaningful. In fact, very interestingly, we have seen in 490 00:33:13,770 --> 00:33:18,680 Speaker 2: the last couple of years, private equity players being able 491 00:33:18,689 --> 00:33:21,520 Speaker 2: to sell multi billion dollar companies 492 00:33:21,839 --> 00:33:27,900 Speaker 2: form a majority 70 75% stake to completely exiting those companies. 493 00:33:28,430 --> 00:33:30,839 Speaker 2: So I think that's giving them confidence and 494 00:33:30,849 --> 00:33:33,849 Speaker 1: that success then begets more success. Fund one worked out. 495 00:33:33,859 --> 00:33:37,209 Speaker 1: The fund two fund three becomes easier. Which sectors do 496 00:33:37,219 --> 00:33:40,150 Speaker 1: you see the most exuberance from the foreign perspective in 497 00:33:40,160 --> 00:33:41,060 Speaker 1: investing in India? 498 00:33:41,459 --> 00:33:47,069 Speaker 2: So I think you are seeing it across the board. 499 00:33:47,079 --> 00:33:51,520 Speaker 2: I think we continue to see in technology, health care, 500 00:33:51,689 --> 00:33:59,130 Speaker 2: but increasingly even in manufacturing, many infrastructure related sectors. So 501 00:33:59,319 --> 00:34:06,359 Speaker 2: whether it is data warehouses, data centers or warehouses, um 502 00:34:06,890 --> 00:34:10,350 Speaker 2: real estate is one sector where we don't see that much. 503 00:34:10,750 --> 00:34:11,110 Speaker 2: But 504 00:34:11,500 --> 00:34:15,189 Speaker 2: except for that, we are actually seeing optimism across the board. 505 00:34:15,199 --> 00:34:19,959 Speaker 2: And again, a lot of these private equity players are 506 00:34:19,969 --> 00:34:24,889 Speaker 2: now looking more at control transactions because in the last 507 00:34:24,899 --> 00:34:28,509 Speaker 2: few years outcomes of those have been better than where 508 00:34:28,520 --> 00:34:30,428 Speaker 2: they were just minority investors. 509 00:34:31,350 --> 00:34:35,260 Speaker 1: Right. Um, I, I have seen, uh, private equity companies, uh, 510 00:34:35,669 --> 00:34:38,909 Speaker 1: even 56 years ago going through a great deal of angst. I, 511 00:34:39,070 --> 00:34:42,649 Speaker 1: I see them flexing these days. They're feeling pretty good 512 00:34:42,659 --> 00:34:46,739 Speaker 1: about themselves. That's great. So, it's, it's interesting that, you know, 513 00:34:46,750 --> 00:34:49,669 Speaker 1: both in the US and in India this interest rate 514 00:34:49,679 --> 00:34:50,300 Speaker 1: cycle 515 00:34:50,719 --> 00:34:54,300 Speaker 1: has not done what it normally does, which is, you know, 516 00:34:54,310 --> 00:34:58,259 Speaker 1: take the leverage froth out of the system D valuations. 517 00:34:58,270 --> 00:35:02,138 Speaker 1: We've seen very little of that, your overall assessment of 518 00:35:02,149 --> 00:35:03,979 Speaker 1: valuation of Indian financial markets. 519 00:35:04,560 --> 00:35:09,699 Speaker 2: So I think there's no doubt the valuation is frothy. 520 00:35:09,939 --> 00:35:15,459 Speaker 2: So today, the broader market is trading at about 521 00:35:16,010 --> 00:35:22,030 Speaker 2: 2122 times forward earnings. But if you look at the 522 00:35:22,310 --> 00:35:26,239 Speaker 2: components of the market, the small and mid caps, they 523 00:35:26,250 --> 00:35:30,350 Speaker 2: are trading at a very large premium to that. So 524 00:35:30,800 --> 00:35:36,070 Speaker 2: those indexes are trading at about 28 times earnings just 525 00:35:36,080 --> 00:35:38,699 Speaker 2: because in the last few years, the growth experience there 526 00:35:38,709 --> 00:35:39,870 Speaker 2: has been better. So 527 00:35:40,949 --> 00:35:44,610 Speaker 2: those companies has compounded earnings at about 30% or so. 528 00:35:44,620 --> 00:35:47,520 Speaker 2: So the multiples are high, I think where we are 529 00:35:47,530 --> 00:35:51,949 Speaker 2: in the earnings cycle where we are seeing recent high 530 00:35:51,959 --> 00:35:55,888 Speaker 2: frequency indicators that there is going to be some moderation there. 531 00:35:55,939 --> 00:36:01,500 Speaker 2: So you will see some pull back in the multiples. Again, 532 00:36:01,510 --> 00:36:06,330 Speaker 2: my take is that it is not so much rates 533 00:36:06,340 --> 00:36:06,810 Speaker 2: driven 534 00:36:07,540 --> 00:36:14,679 Speaker 2: and the US and India kind of comparison is not 535 00:36:14,689 --> 00:36:18,600 Speaker 2: similar because India actually had not had a rate cycle. 536 00:36:18,610 --> 00:36:22,320 Speaker 2: And so India, we have not had rates go up 537 00:36:22,330 --> 00:36:26,149 Speaker 2: as steeply as what we saw in the US. And 538 00:36:26,159 --> 00:36:27,429 Speaker 2: actually in India 539 00:36:27,850 --> 00:36:32,719 Speaker 2: through this exhibit, the MC growth has been fairly modest, right? 540 00:36:32,729 --> 00:36:36,330 Speaker 2: So if you see last year, the MC growth was 541 00:36:36,340 --> 00:36:40,560 Speaker 2: in low teens. So, so we have not actually had 542 00:36:40,570 --> 00:36:46,070 Speaker 2: the central bank driving money increase. In fact, based money 543 00:36:46,080 --> 00:36:49,260 Speaker 2: growth has been pretty subdued. So actually base money growth 544 00:36:49,270 --> 00:36:52,459 Speaker 2: last year was 4% right? 545 00:36:52,810 --> 00:36:56,370 Speaker 2: So the credit multiplier was high, but the base money 546 00:36:56,379 --> 00:37:01,699 Speaker 2: growth was very low. And in fact, one of the 547 00:37:03,250 --> 00:37:07,350 Speaker 2: outcome we are seeing now is that because of that 548 00:37:07,360 --> 00:37:10,760 Speaker 2: credit has actually been pulled back. So one of the 549 00:37:10,770 --> 00:37:14,520 Speaker 2: reasons why you are seeing a slow down this financially 550 00:37:14,530 --> 00:37:19,080 Speaker 2: in India is because the credit impulse has been quite negative, right? 551 00:37:19,320 --> 00:37:24,129 Speaker 2: And we are now seeing Albia change its stance towards 552 00:37:24,139 --> 00:37:28,689 Speaker 2: liquidity and we are starting to see better base money 553 00:37:28,699 --> 00:37:29,819 Speaker 2: growth coming in 554 00:37:30,469 --> 00:37:33,839 Speaker 2: and that will be needed for the Indian economy to 555 00:37:33,850 --> 00:37:36,330 Speaker 2: kind of get back its growth. 556 00:37:36,810 --> 00:37:39,250 Speaker 1: How is the RBA doing there? Have they just increased 557 00:37:39,260 --> 00:37:42,060 Speaker 1: currency in circulation during some QE or? 558 00:37:42,189 --> 00:37:45,620 Speaker 2: Yeah, so I think what was happening is they were 559 00:37:45,629 --> 00:37:49,169 Speaker 2: actually withdrawing accommodation. So from there, they have moved to 560 00:37:49,179 --> 00:37:50,820 Speaker 2: neutral stance today 561 00:37:51,550 --> 00:37:57,569 Speaker 2: last year. Actually you saw currency in circulation getting restricted, 562 00:37:57,580 --> 00:38:01,649 Speaker 2: there was withdrawal of the ₹2000 note, etcetera. So I 563 00:38:01,659 --> 00:38:05,729 Speaker 2: think all that contributed to it. So now they are 564 00:38:05,739 --> 00:38:10,929 Speaker 2: actually managing liquidity much more dynamically. 565 00:38:11,760 --> 00:38:17,790 Speaker 2: Another angle was that the government was not spending fast enough. 566 00:38:17,800 --> 00:38:22,339 Speaker 2: So the government was having nearly ₹5 trillion of cash 567 00:38:22,350 --> 00:38:27,610 Speaker 2: surplus until a few months ago. And now the government 568 00:38:27,620 --> 00:38:31,320 Speaker 2: parks its cash surplus with the not with the commercial banks. 569 00:38:31,389 --> 00:38:34,580 Speaker 2: So when the government has cash surplus, it's actually withdrawal 570 00:38:34,590 --> 00:38:36,590 Speaker 2: of liquidity from the market. And 571 00:38:37,169 --> 00:38:40,330 Speaker 1: this is because of a change in liquidity management framework. 572 00:38:41,189 --> 00:38:45,770 Speaker 2: And so as the government spending has been coming back 573 00:38:45,780 --> 00:38:49,449 Speaker 2: post election, so those balances have come. So actually in 574 00:38:49,459 --> 00:38:54,959 Speaker 2: the last six months, we have had fairly negative fiscal 575 00:38:54,969 --> 00:38:57,899 Speaker 2: as well as credit impulse in the economy. And that's 576 00:38:57,909 --> 00:39:01,699 Speaker 2: kind of reflecting in the high frequency indicators in the 577 00:39:01,709 --> 00:39:02,649 Speaker 2: last few months. 578 00:39:02,919 --> 00:39:03,290 Speaker 1: Great. 579 00:39:03,419 --> 00:39:04,290 Speaker 1: Ok, we 580 00:39:04,395 --> 00:39:06,294 Speaker 1: we're going to transition to banks, but you've already bought 581 00:39:06,304 --> 00:39:11,344 Speaker 1: the discussion to banks. You wrote those seminal papers 13 582 00:39:11,354 --> 00:39:13,915 Speaker 1: years ago, the House of Debt, the banking system has 583 00:39:13,925 --> 00:39:16,904 Speaker 1: come a long way since then. So a quick rundown 584 00:39:16,915 --> 00:39:19,125 Speaker 1: on the journey since then to now and where you 585 00:39:19,135 --> 00:39:20,334 Speaker 1: see the Indian banking system. 586 00:39:20,675 --> 00:39:27,455 Speaker 2: So I think really those papers were actually 587 00:39:27,879 --> 00:39:31,050 Speaker 2: the starting point was not looking at the bank balance sheet, 588 00:39:31,060 --> 00:39:34,050 Speaker 2: the starting point, we're looking at the corporate balance sheet, right? 589 00:39:34,260 --> 00:39:38,899 Speaker 2: And because bank balance sheet at that point, we looking healthy, right? So, 590 00:39:39,070 --> 00:39:42,189 Speaker 2: but we spot the trouble because we looked at the 591 00:39:42,199 --> 00:39:44,139 Speaker 2: corporate balance sheet. And if I look at 592 00:39:44,229 --> 00:39:48,270 Speaker 2: corporate balance sheets today, you feel quite happy about it, right? 593 00:39:48,280 --> 00:39:52,330 Speaker 2: Because corporate balance sheets are very very light on debt. 594 00:39:52,340 --> 00:39:56,179 Speaker 2: So there is really no large pocket of over leverage 595 00:39:56,189 --> 00:40:00,649 Speaker 2: that is visible across the board in any industry, right? 596 00:40:00,979 --> 00:40:04,969 Speaker 2: And so that is very comforting that corporate leverage is 597 00:40:04,979 --> 00:40:10,759 Speaker 2: very low. In fact, even as we have seen acceleration 598 00:40:10,770 --> 00:40:11,569 Speaker 2: in the economy, 599 00:40:11,830 --> 00:40:16,429 Speaker 2: if anything Corporates have been reluctant to add on debt, 600 00:40:17,270 --> 00:40:22,050 Speaker 2: both because of historic experience because the last 10 years 601 00:40:22,060 --> 00:40:28,069 Speaker 2: saw people going both going through pain both in the 602 00:40:28,080 --> 00:40:34,000 Speaker 2: corporate as well as personally, right? Because never before in India, 603 00:40:34,270 --> 00:40:39,529 Speaker 2: the travels of the company used to become a challenge 604 00:40:39,540 --> 00:40:42,449 Speaker 2: for the promoters. So, but they saw that in the 605 00:40:42,459 --> 00:40:43,649 Speaker 2: last cycle. So I think 606 00:40:43,879 --> 00:40:46,948 Speaker 2: they are being even more circumspect in this cycle to 607 00:40:46,959 --> 00:40:52,540 Speaker 2: take on leverage. Really, there are no corporate which is 608 00:40:52,550 --> 00:40:55,229 Speaker 2: I think today has a leverage beyond food and debt 609 00:40:55,239 --> 00:40:58,520 Speaker 2: to a bit. Of course, the other factor is because 610 00:40:58,530 --> 00:41:02,030 Speaker 2: equity markets are so buoyant as of now, people are 611 00:41:02,040 --> 00:41:08,179 Speaker 2: happy to fuel their Capex ambitions through the equity market 612 00:41:08,189 --> 00:41:12,629 Speaker 2: rather than rely on the debt market. So corporate balance 613 00:41:12,639 --> 00:41:13,540 Speaker 2: sheets are very clean. 614 00:41:15,229 --> 00:41:20,580 Speaker 2: Another challenge we saw in 2018 19 was the shadow 615 00:41:20,590 --> 00:41:27,370 Speaker 2: banks where there was not so much an issue of leverage, 616 00:41:27,379 --> 00:41:30,659 Speaker 2: but it was issue of asset quality and issue of 617 00:41:30,669 --> 00:41:36,260 Speaker 2: a mismatches that also is not there. So most of 618 00:41:36,270 --> 00:41:38,500 Speaker 2: the non bank lenders today operated 619 00:41:38,780 --> 00:41:45,729 Speaker 2: leverage levels before four times their liquidity management frameworks are 620 00:41:46,050 --> 00:41:50,629 Speaker 2: as tight as of the banks as well. So that 621 00:41:50,639 --> 00:41:54,239 Speaker 2: also we find very, very comforting. In fact, if you 622 00:41:54,250 --> 00:42:00,989 Speaker 2: see bank balance sheets over the past 56 years, shares 623 00:42:01,000 --> 00:42:03,989 Speaker 2: of corporate loans in the bank balance sheet has come down. 624 00:42:04,000 --> 00:42:05,989 Speaker 2: So about 10 years ago, it used to be 625 00:42:07,139 --> 00:42:12,570 Speaker 2: almost 80% of the bank book. That number is now 626 00:42:12,580 --> 00:42:17,810 Speaker 2: about 60% of both corporate and put together. So we 627 00:42:17,820 --> 00:42:22,379 Speaker 2: find that very, very comfortable last few years, the growth 628 00:42:22,389 --> 00:42:27,800 Speaker 2: has been much more consumer led and in consumer, we 629 00:42:27,810 --> 00:42:31,500 Speaker 2: are seeing some stress emerging on the unsecured consumer side 630 00:42:31,770 --> 00:42:34,469 Speaker 2: just because there has been very rapid. 631 00:42:35,889 --> 00:42:39,330 Speaker 2: But again, it is not something that puts balance sheet 632 00:42:39,340 --> 00:42:42,489 Speaker 2: to this, right? So you are seeing some normalization in 633 00:42:42,500 --> 00:42:46,280 Speaker 2: the credit score, et cetera, but bank balance sheets are 634 00:42:46,290 --> 00:42:50,080 Speaker 2: healthier than they have been ever before. I have not 635 00:42:50,090 --> 00:42:52,840 Speaker 2: seen bank balance sheets as clean as this in the 636 00:42:52,850 --> 00:42:53,830 Speaker 2: last 30 years. 637 00:42:54,449 --> 00:42:56,389 Speaker 1: That's good to know. So how are banks making money 638 00:42:56,399 --> 00:42:58,350 Speaker 1: through names through fees? 639 00:42:59,040 --> 00:43:05,320 Speaker 2: So it is through names, so as well as very 640 00:43:05,330 --> 00:43:09,840 Speaker 2: low credit cost. So today the average A E banks 641 00:43:09,850 --> 00:43:14,799 Speaker 2: make is about 15 16%. And very interestingly, there has 642 00:43:14,810 --> 00:43:19,139 Speaker 2: been convergence in A E across public and private banks. 643 00:43:19,149 --> 00:43:23,540 Speaker 2: So a few years ago, you had private banks making 644 00:43:23,550 --> 00:43:27,379 Speaker 2: 80 20% in public sector banks making 645 00:43:27,889 --> 00:43:31,319 Speaker 2: low single digit a or even in losses, I think 646 00:43:31,330 --> 00:43:35,549 Speaker 2: because we are in such a favorable cycle, even public 647 00:43:35,560 --> 00:43:39,000 Speaker 2: sector banks have had a very low credit costs. So 648 00:43:39,010 --> 00:43:43,408 Speaker 2: you are seeing literally all the banks now gravitating towards 649 00:43:44,949 --> 00:43:47,679 Speaker 1: but the private sector banks remain dominant. If you look 650 00:43:47,689 --> 00:43:49,250 Speaker 1: at the market share of those are the largest private 651 00:43:49,260 --> 00:43:50,610 Speaker 1: sector banks, they're bigger than SB 652 00:43:51,290 --> 00:43:55,179 Speaker 2: yeah, but uh that is to as much to do 653 00:43:55,189 --> 00:43:57,469 Speaker 2: with the growth. So they are still kind of gaining 654 00:43:57,479 --> 00:44:05,370 Speaker 2: market share at least from the smaller public sector banks. 655 00:44:07,510 --> 00:44:09,600 Speaker 1: Outlook for the banking 656 00:44:09,610 --> 00:44:10,080 Speaker 1: system. 657 00:44:10,199 --> 00:44:15,820 Speaker 2: I think outlook is healthy. I think of course, in 658 00:44:15,830 --> 00:44:20,419 Speaker 2: terms of other way we have last year, I think 659 00:44:20,429 --> 00:44:26,310 Speaker 2: hit peak profitability because you have had this really good 660 00:44:26,320 --> 00:44:30,219 Speaker 2: space where your Nims were at a high and credit 661 00:44:30,229 --> 00:44:34,100 Speaker 2: costs were at a cyclical low. You will drive some 662 00:44:34,110 --> 00:44:35,379 Speaker 2: normalization there. 663 00:44:35,770 --> 00:44:40,610 Speaker 2: But even if other way moderates, it will still be 664 00:44:40,620 --> 00:44:46,330 Speaker 2: much healthier than what it has historically been for banking 665 00:44:46,340 --> 00:44:50,550 Speaker 2: sector in aggregate, we are looking at somewhere between 1.2 666 00:44:50,560 --> 00:44:53,840 Speaker 2: to 1.5%. Other way for most banks, the best than 667 00:44:53,850 --> 00:45:00,489 Speaker 2: private banks will be close to 2% other way. So 668 00:45:00,500 --> 00:45:04,699 Speaker 2: and as we discussed, balance sheet is very, very healthy, right. 669 00:45:05,550 --> 00:45:09,350 Speaker 2: In the near term, we see some moderation and growth 670 00:45:09,360 --> 00:45:12,620 Speaker 2: both because the growth in the economy has come down. 671 00:45:12,629 --> 00:45:16,189 Speaker 2: And second, the regulator has kind of clamped down on 672 00:45:16,199 --> 00:45:22,389 Speaker 2: certain segments like unsecured consumer loans because it was seeing 673 00:45:22,770 --> 00:45:27,719 Speaker 2: heightened activity there. Microfinance has had a pull back. So 674 00:45:27,729 --> 00:45:29,030 Speaker 2: that will kind of 675 00:45:29,459 --> 00:45:34,699 Speaker 2: we on the margins a bit. But I still think 676 00:45:35,939 --> 00:45:40,370 Speaker 2: the medium term outlook is kind of great even though 677 00:45:40,479 --> 00:45:45,270 Speaker 2: just 612 months earnings momentum will be desalinating. But I 678 00:45:45,280 --> 00:45:49,399 Speaker 2: think profitability of banks will be fairly robust. So 679 00:45:49,489 --> 00:45:52,320 Speaker 1: 5 to 8 years ago, banks used around the world 680 00:45:52,330 --> 00:45:53,799 Speaker 1: were having sleepless nights thinking 681 00:45:53,889 --> 00:45:57,189 Speaker 1: the fintech companies were so nimble and they offer such 682 00:45:57,199 --> 00:46:00,509 Speaker 1: great user experience that if the banks don't keep up 683 00:46:00,520 --> 00:46:04,320 Speaker 1: with their strategy, old school models, they will not be 684 00:46:04,330 --> 00:46:07,020 Speaker 1: able to compete. It seems like they didn't have to 685 00:46:07,030 --> 00:46:07,870 Speaker 1: be worried so much. 686 00:46:08,040 --> 00:46:12,469 Speaker 2: I think they needed to be. And I think it's 687 00:46:12,479 --> 00:46:15,909 Speaker 2: good that they work with it. And I think what's 688 00:46:15,919 --> 00:46:18,158 Speaker 2: happened is that 689 00:46:21,199 --> 00:46:26,239 Speaker 2: you have had Fintech becoming successful when they have partnered 690 00:46:26,250 --> 00:46:29,790 Speaker 2: with banks, right? And banks that have gained and I'm 691 00:46:29,800 --> 00:46:35,560 Speaker 2: sure that's true for Singapore as well. Banks that have 692 00:46:35,570 --> 00:46:39,429 Speaker 2: left their technology have been able to gain market share 693 00:46:39,439 --> 00:46:45,360 Speaker 2: and particularly disproportionate market share in the more remunerative segments, right? 694 00:46:45,679 --> 00:46:50,219 Speaker 2: So I think uh one challenge and as we talked 695 00:46:50,229 --> 00:46:53,600 Speaker 2: about it briefly is that uh Fintech 696 00:46:55,649 --> 00:47:01,819 Speaker 2: in banking or financial services cannot disrupt as meaningfully as 697 00:47:01,830 --> 00:47:05,389 Speaker 2: in other sectors because it's a tightly regulated sector, right? 698 00:47:05,649 --> 00:47:11,959 Speaker 2: But I think the disruption will happen by another regulated 699 00:47:11,969 --> 00:47:17,169 Speaker 2: entity only, but that regulated entity which leverages technology the best, 700 00:47:17,179 --> 00:47:21,060 Speaker 2: either creating its own technology or partnering with the nimble 701 00:47:21,409 --> 00:47:24,389 Speaker 1: tech. And you're seeing it with most large Indian banks, 702 00:47:25,419 --> 00:47:29,360 Speaker 1: uh fantastic uh Ashish overall economy for the Indian 703 00:47:30,110 --> 00:47:31,009 Speaker 1: going forward. 704 00:47:31,080 --> 00:47:36,310 Speaker 2: So I think we know Indian economy is on a 705 00:47:36,320 --> 00:47:43,219 Speaker 2: fairly robust footing. I think one big comfort I draw 706 00:47:46,939 --> 00:47:50,570 Speaker 2: in the last 56 years is the macro has become 707 00:47:50,580 --> 00:47:56,719 Speaker 2: very very stable. Right? Historically, whenever we talked about India, 708 00:47:56,729 --> 00:48:00,600 Speaker 2: from an investor's perspective, there was always a few vulnerabilities 709 00:48:00,610 --> 00:48:04,870 Speaker 2: we discussed, right? So India had a high fiscal deficit, 710 00:48:04,879 --> 00:48:06,739 Speaker 2: high current account deficit, 711 00:48:08,260 --> 00:48:14,479 Speaker 2: there was high vulnerability to oil prices and rainfall, right? 712 00:48:14,750 --> 00:48:19,290 Speaker 2: So I think the macro has become very stable and 713 00:48:19,520 --> 00:48:22,889 Speaker 2: and that is why I believe to a certain degree 714 00:48:23,195 --> 00:48:27,034 Speaker 2: there is really comfort that you can pay a higher 715 00:48:27,044 --> 00:48:31,074 Speaker 2: multiple for these earnings, right? And again, a similar thing 716 00:48:31,084 --> 00:48:34,975 Speaker 2: about vulnerability to foreign flow, right? So if you recall 717 00:48:35,294 --> 00:48:39,944 Speaker 2: the taper tantrum in 2013, a couple of billion dollars 718 00:48:39,955 --> 00:48:42,044 Speaker 2: flew out of the Indian market, 719 00:48:42,830 --> 00:48:48,840 Speaker 2: August September 2013, right? And the market fell by 20%. 720 00:48:48,850 --> 00:48:54,359 Speaker 2: Currency depreciated by 10% right? And if you see last month, 721 00:48:54,800 --> 00:48:59,870 Speaker 2: about $10 billion went out of in India. So in October, 722 00:48:59,879 --> 00:49:03,600 Speaker 2: foreigners have sold $10 billion markets have connected, but currency 723 00:49:03,610 --> 00:49:05,810 Speaker 2: has not moved, right. So I think the macro has 724 00:49:05,820 --> 00:49:07,138 Speaker 2: become a lot more stable. 725 00:49:08,399 --> 00:49:12,439 Speaker 2: The forex reserves are kind of all time high. Some 726 00:49:12,449 --> 00:49:15,389 Speaker 2: argue they are too high and we have kind of 727 00:49:16,340 --> 00:49:20,020 Speaker 2: not depreciated the currency as probably it should have and 728 00:49:20,030 --> 00:49:23,929 Speaker 2: we have lost competitive. But even the current account, if 729 00:49:23,939 --> 00:49:28,969 Speaker 2: you see a a from a level of the 4% 730 00:49:28,979 --> 00:49:35,169 Speaker 2: of GDP is now plus minus 0.5% of GDP. So 731 00:49:35,179 --> 00:49:39,379 Speaker 2: current account is a lot more stable. Your services exports 732 00:49:39,389 --> 00:49:43,570 Speaker 2: are nearly 10% of GDP, right? And 733 00:49:44,520 --> 00:49:48,919 Speaker 2: they actually provide a good counterfoil to oil prices, right? 734 00:49:48,929 --> 00:49:55,830 Speaker 2: So the total services exports are larger than the oil 735 00:49:55,840 --> 00:49:59,299 Speaker 2: import bill, right? So I think we have had macro 736 00:49:59,310 --> 00:50:01,060 Speaker 2: stability coming from all this 737 00:50:02,209 --> 00:50:07,560 Speaker 2: India has seen or will see by next year, fiscal 738 00:50:07,570 --> 00:50:12,179 Speaker 2: deficit really coming down by 50% form. So in pandemic, 739 00:50:12,189 --> 00:50:14,908 Speaker 2: we hit 9% of GDP next year, we will be 740 00:50:14,919 --> 00:50:21,570 Speaker 2: again below 4.5% of GDP, right? So we are actually 741 00:50:21,580 --> 00:50:26,300 Speaker 2: seeing stability across all these historical vulnerabilities, right? 742 00:50:26,610 --> 00:50:31,500 Speaker 2: I think the challenge is that we are probably hitting 743 00:50:31,510 --> 00:50:36,040 Speaker 2: a patch of some growth slow down and expectations are 744 00:50:36,050 --> 00:50:40,739 Speaker 2: relatively high, right? We spoke about the fact that because 745 00:50:40,750 --> 00:50:45,300 Speaker 2: of the negative credit and fiscal impulse growth indicators have 746 00:50:45,310 --> 00:50:46,120 Speaker 2: moderated 747 00:50:46,489 --> 00:50:51,549 Speaker 2: mass consumption pickup has not been as strong as expected. 748 00:50:51,560 --> 00:50:56,908 Speaker 2: There are various reasons attributable of how post panic recovery 749 00:50:56,919 --> 00:50:59,669 Speaker 2: there has been slow. So those are the pockets we 750 00:50:59,679 --> 00:51:02,649 Speaker 2: need to address. And if I was to su I'll 751 00:51:02,659 --> 00:51:07,459 Speaker 2: say that balance sheet wise, we are strong P and 752 00:51:07,469 --> 00:51:10,109 Speaker 2: L wise, we are kind of losing some of the moment. 753 00:51:10,830 --> 00:51:13,739 Speaker 1: That's a great way to summarize the current state of affairs. 754 00:51:13,750 --> 00:51:17,070 Speaker 1: A very insightful conversation, Ashish Gupta. Thank you so much. 755 00:51:18,000 --> 00:51:20,929 Speaker 1: Thanks to our listeners as well. Cy time was produced 756 00:51:20,939 --> 00:51:25,030 Speaker 1: by Ken Delbridge Violet, Lee and Daisy Sharma provided additional assistance. 757 00:51:25,250 --> 00:51:29,820 Speaker 1: All 141 episodes of this podcast are available on Spotify 758 00:51:29,830 --> 00:51:33,080 Speaker 1: and Apple podcast. This was for information only and does 759 00:51:33,090 --> 00:51:37,259 Speaker 1: not constitute any investment advice. As for our research publication, 760 00:51:37,270 --> 00:51:40,219 Speaker 1: you can find them all by Googling D BS research Library. 761 00:51:40,340 --> 00:51:41,219 Speaker 1: Have a great day.