- 2 years ago
Kedaara Capital's Manish Kejriwal says India has been insulated from the global market for so long, but the bull market is unprecedented.
Watch his conversation with NDTV Profit's Niraj Shah at the World Economic Forum 2024 in Davos. #WEF24 #wef #davos2024 #ndtv
Watch his conversation with NDTV Profit's Niraj Shah at the World Economic Forum 2024 in Davos. #WEF24 #wef #davos2024 #ndtv
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00:00 - The World Economic Forum at Davos 2024
00:03 and in conversation with Manish Kedriwal of Kedara Capital.
00:07 There are multiple ways in which Manish is known.
00:09 I'll just introduce him as somebody who's been here
00:11 for such a long time, gets the pulse of Davos so well.
00:14 And Manish, an important time considering that
00:17 in a disjointed, fragmented world,
00:21 India seems to be that oasis of stability,
00:25 calm, and investability.
00:27 Would that be a correct way to characterize this?
00:30 - You know, the moniker I would use for this
00:32 is the credible, incredible India.
00:35 Because I think for the first time,
00:38 we actually have all the ducks in line, right?
00:41 We have a geopolitical situation
00:46 which is almost deglobalization globally, right?
00:49 Increasingly, India's playing a larger and larger role
00:52 under the leadership of both Minister Jai Shankar
00:55 and Dharam and Dharam.
00:57 I think we have a foreign policy,
00:59 obviously under the Chhatra Chaiya of our Prime Minister,
01:02 which is a very unique foreign policy.
01:05 We're actually, without being a bully,
01:07 stating a fact as it is,
01:09 we're doing what's in the best interest of India.
01:12 We're not letting other people drive our agenda.
01:15 So geopolitically, and we are credibly needed,
01:19 the US needs us to balance what's going on in China
01:22 and in the Middle East.
01:23 We, like you said, we're an oasis of peace and calm
01:26 in a region which is strife,
01:29 whether it's Taiwan and China,
01:31 whether it's the Middle East, the Hamas, and Israel.
01:33 And increasingly, it's, if I move on from geopolitics
01:37 to the economy, while India's always been reticent
01:41 and relatively insulated from the global trade flows,
01:46 and the local markets are so large and growing,
01:50 the sort of growth rate for an economy already so large
01:53 is unprecedented, right?
01:55 And finally with that, what we have,
01:58 I used to say in the past,
01:59 we invest in India despite the government, right?
02:04 20 years ago, 10 years ago.
02:05 For the first time, what we're seeing is not headwinds,
02:08 but tailwinds.
02:10 The government is actually edging us forward,
02:13 the economy as a whole, and we're all, and how is that?
02:17 Whether it's infrastructure,
02:19 whether it's the digital stack, whether it's governance,
02:22 these are areas which in the past you could have said,
02:25 you're investing in India despite things not working.
02:28 You look at Bombay.
02:30 The trans-harbor link was opened up, you live in Bombay.
02:33 I mean, my wife went on that on Saturday.
02:36 We were going to Pune.
02:37 As soon as the coastal road was ready, and then the metro.
02:41 I mean, I think Bombay itself,
02:43 who would have thought in our lifetimes we'll have this
02:46 and we'll be able to go to the new airport
02:48 even sooner than our local domestic airport.
02:50 - Yeah, well, inshallah.
02:51 Hopefully that happens too.
02:52 But, so Manish, that's the reason.
02:54 I mean, you would have been speaking to investors
02:56 ahead of the forum for the last one month.
02:58 It's a new calendar year.
03:00 You're sure you've got a ton of meeting lined up here.
03:02 Is the India interest a bit higher
03:04 than what it was last time?
03:05 Because last time it was loud
03:07 and to the point of it being a shrill.
03:09 Is it as loud or louder this time around as well?
03:11 - You know, I think the whole shrill thing,
03:14 I don't know if the shrill is from the investors
03:17 or the shrill is from ourselves.
03:18 - Okay. - All right?
03:19 So firstly, I wanna say the sort of,
03:22 you know, the paintings on the buses,
03:23 I'm glad we're not doing it this year.
03:25 We're calling it Credible India
03:27 in addition to being incredible.
03:29 We're doing much more content-driven interaction.
03:32 Bollywood nights were good, but few and far between.
03:36 Not every night shouldn't be a Bollywood night, right?
03:38 We should be proud of our culture,
03:39 but let's do the traditional dances,
03:41 the Zagat Raseins of the world.
03:43 It's not just Bollywood.
03:44 But there's so much more richer content,
03:46 whether it's rich economists like Gita Gopinath,
03:50 the Ajay Bangas of the world, our businessmen,
03:53 whether they're conglomerates, all our startups.
03:55 We are in a phenomenal situation right now.
03:57 So I think there's credibly a significant interest in India.
04:02 And that interest, I think, is genuine.
04:04 But now let me peel the thing one more,
04:06 what's happening, right?
04:07 When you see what's happening in China,
04:09 and people often ask,
04:10 is all the capital that's going to China coming to India?
04:13 That's not the case. - No, it's not.
04:14 - And that will not be the case, right?
04:16 China has its own place.
04:18 There is a temporary slowdown.
04:20 It's also a very large market.
04:22 There's lots of geopolitical complications.
04:25 China will be back.
04:26 So I don't think we can substitute for China.
04:29 We can be in addition to China.
04:30 We can take more and more market share
04:33 from an Apple's manufacturing of iPhones
04:37 into India from China.
04:38 But I think the swing or the pivot will be
04:42 the pools of capital which have already been raised.
04:45 Here I'm talking, see, we are,
04:46 Kadara, multiples, Trisk Capital, Everstone.
04:50 It's India-focused.
04:51 We don't know and don't want to invest.
04:54 We're relatively small, simple guys sitting on the wall.
04:57 The global guys are much larger.
04:58 They raise pan-Asian funds
05:00 in addition to their global funds.
05:02 So KKR, I think, did a seven or eight billion dollar fund.
05:05 So did Bain.
05:06 Carlyle on its way.
05:07 TPG's done that.
05:09 They used to allocate money
05:10 across all the Asian countries.
05:13 But it varied, but I would say a very broad generalization.
05:17 Between 40 to 60% of that capital went to China.
05:21 India was normally 10 to 15%.
05:23 China is gonna freeze, at least temporarily,
05:26 even in these pan-Asian funds.
05:28 So that 50 or 60% money's gonna go where?
05:31 It's not gonna all come to India.
05:32 Japan is an incredibly attractive market,
05:35 especially for guys like Bain Capital.
05:37 They made a ton of money out there.
05:38 So some money will go to Japan.
05:40 But India, the force, will go from 10 to 20%
05:43 to at least 30 to 40% of those funds.
05:45 That's an incredible amount of new capital
05:47 coming into India.
05:48 And that's coming in, so these guys will be enhancing
05:51 the size and the quality of the teams domestically.
05:54 You've seen an interview with Henry Kravis of KKR.
05:59 He talks about significantly enhancing investments in India.
06:02 He's been around for 25 years.
06:04 He's an endophile, he loves the place.
06:06 But there were some challenges he had
06:09 in terms of how, I think that's changed as an example.
06:12 The other big shift, again, we won't do this,
06:14 we're simple private equity guys.
06:16 Our job is okay, we do three, four, five deals a year.
06:19 We raise capital, we deploy it, we transform
06:23 the companies we invest behind,
06:24 and hopefully have an exit and a DPI to our investors.
06:28 The global guys are far more diverse.
06:30 We don't wanna be like them, but what are they doing?
06:33 I think today in India, Blackstone is probably
06:35 the largest investor, but their real estate investments
06:38 is actually larger than the private equity already.
06:40 And both are very large, but it's the second largest
06:43 market outside of the US.
06:45 So all of them, if you look at Blackstone,
06:47 if you look at KKR, suddenly infrastructure,
06:50 which was so far a government domain,
06:52 or that of the Canadian pension plans,
06:54 or the Brookfields of the world,
06:55 is being by traditional private equity players.
06:58 So their shift in India also, we will stick
07:00 to doing private equity in our software,
07:03 but these guys will move to do a lot more of that.
07:05 I mean, the largest deal, sorry, it just struck me,
07:08 Larry Fink and BlackRock, you saw they bought
07:10 our GIF, that will be a transformational deal.
07:13 The amount of capital now available to GIF,
07:16 the amount of money that BlackRock will be putting
07:19 into infrastructure, of course there's demands
07:21 of the capital everywhere, but GIF already
07:23 has a presence in India.
07:25 I think the amount of money coming in from private sources
07:28 for infrastructure is gonna be significantly higher,
07:31 and you can see the projects, in the old days,
07:33 there was an environmental issue,
07:34 there was some other issue.
07:36 Projects got delayed.
07:37 People are seeing the execution capacity
07:40 and the capability, and the helping hand.
07:43 So you're attracting private capital in addition
07:46 to the public capital that was coming,
07:47 whether it was Japanese money, Singapore money,
07:50 or Canadian money in the past.
07:51 - Very interesting, it's a bit of a difference,
07:55 simply because, I mean, you say this at the point of time
07:57 when Fairfax has gone out and said that we're increasing
07:59 the stake in the Bangalore airport,
08:00 want to buy more airports, so on and so forth.
08:02 Here's one question, though.
08:05 The 2022 and '23 arguably also shown the depth
08:10 of the Indian capital markets, right?
08:13 Wherein FIs were able to take an exit
08:15 without a big damage to the tape.
08:17 And 2020 was a year of IPOs,
08:19 with so many coming out as well.
08:21 My question is, there's a flurry of newer sectoral companies
08:26 and newer companies coming out,
08:28 which are not necessarily by definition large.
08:31 Traditionally, the penchant was for investing
08:33 into larger names because there is safety and liquidity.
08:36 But the newer companies are all small by definition.
08:39 What happens, therefore, to money?
08:40 Does it chase these newer companies,
08:43 or does it kind of bide its time until these guys grow?
08:46 - See, I think, Neeraj, you're making two points.
08:49 One is the depth of the capital markets.
08:52 It is phenomenal.
08:53 I mean, as private equity, we look for exits.
08:57 We do our control exits to strategics,
08:59 whether there are strategic companies
09:01 and global companies coming into India,
09:03 or financial sponsors.
09:05 We sold one company to Advent, one to Warwick Pinkers.
09:09 We were in the process of selling
09:10 one other company to KKR, right?
09:12 So those are happening on the private side.
09:14 It's a private-to-private transaction.
09:16 The company's on glisten.
09:17 On the other hand, as private equity,
09:19 we have a bunch of companies we've already listed
09:22 where we've got an exit.
09:24 Maniwar is one such case.
09:25 But others where we've exited partial stakes,
09:29 but still have a controlling stake.
09:30 For example, in Avaaz Housing,
09:32 or as Fundana, a microfinance company.
09:34 Suddenly, the depth of the market is so deep,
09:37 you can actually have blocks and secondary transactions
09:41 of amounts which were unprecedented earlier.
09:43 You saw KKR outflowed almost its entire stake
09:46 in Max Healthcare.
09:47 That was a billion to $2 billion of capital
09:51 switching hands in 12 hours by an overnight transaction.
09:55 So that is one, the depth of the markets,
09:57 both in terms of its appeal to portfolio companies
10:00 and to private equity, 'cause we're finally getting exits,
10:03 both strategically and in IPOs and the secondary market.
10:08 To your question in terms of India
10:10 is thriving for entrepreneurs.
10:13 The reason we all gave up careers outside India
10:16 and came back 20 years ago,
10:18 you believed in not just the Indian consumer,
10:21 but the Indian consumer was supplied
10:23 by the Indian entrepreneur.
10:24 A McDonald's is more Indian in India than it is globally.
10:29 So that whole, someone like an Amit Jha here and Smith
10:33 are converting what was a global thing into,
10:35 it's very, very unique.
10:37 That is growing, the demand is growing.
10:39 So I think, obviously, the larger business houses
10:43 were always well capitalized.
10:45 They had access to global pools of equity and debt.
10:48 They didn't need, but the smaller companies,
10:50 which were initially, if you remember,
10:52 there was nothing called venture capital 20 years ago.
10:55 When my father started a textile company in 1978,
10:58 he listed the company.
10:59 The markets were a venture capital,
11:01 a form of venture capital for him.
11:03 That's no longer the case.
11:05 Companies go public when you're ready.
11:07 And so if you take a NICA, First Cry is going IPO.
11:11 These were companies which essentially were driven
11:15 by superb entrepreneurs, whether it's Fargani Nair,
11:18 whether it's Maheshwari, it's superb in First Cry's case.
11:22 The initial capital was venture,
11:24 but now they're gonna stand on their own.
11:26 They don't need private equity.
11:27 They don't need venture capital.
11:29 And the depth of the market,
11:30 now what will happen to valuations?
11:32 Will be a reflection of performance,
11:34 which is growth in margins and governance.
11:37 The moment you see a drop in governance,
11:39 there's gonna be a collapse in market cap.
11:41 But I think a lot of these companies today,
11:43 which were the smaller types,
11:45 the thirst of capital was sort of quenched by,
11:49 in the past, by the soft banks,
11:51 the alpha waves of the world.
11:52 That's drying up a little bit.
11:54 But the more later private equity like ours,
11:57 all the global guys like the Blackstone's of the world,
11:59 as well as the markets themselves,
12:02 will be our largest competitor to the private equity.
12:04 But for the entrepreneur, what a fantastic choice to have.
12:07 - Okay.
12:09 Well, and hopefully it only improves.
12:11 My final piece, really, and a small one at that,
12:16 but for a lot of Indian companies,
12:20 as well as global companies,
12:21 this unprecedented geopolitical crisis,
12:24 Red Sea, for example, is leading to an uptick in cost.
12:28 Do you think near term, those factors hurt corporate India,
12:32 or you think they'll tide by it?
12:35 - You know, I think there's always a balance, Neeraj.
12:38 And Indian corporates have dealt with stuff
12:42 and challenges much deeper than this,
12:44 such as the non-availability of oil itself,
12:46 or the price of oil,
12:47 or the cost of money and the cost of interest.
12:50 So while a supplier, a logistics transporter suffers,
12:55 because his shipping is going to the Swiss,
12:59 goes through the Horn of Africa,
13:01 the length of time and the expense increases.
13:04 Suddenly, my friend Bharat and Ravi shared
13:08 of Great Eastern Shipping,
13:10 I'm sure of the beneficiaries, right?
13:11 Suddenly the capacity utilization of their ships--
13:14 - Well, that's a small set.
13:15 - Of course, but I'm just saying,
13:17 it depends on what you define as your focus, right?
13:21 If you define your focus only as companies supplying oil,
13:24 or the oil goes, fine, they'll suffer,
13:27 but the higher price of oil will make up for that.
13:29 But even as they suffer,
13:30 there are other beneficiaries, like the shipping companies.
13:33 Total sum remains sort of equal.
13:35 The only way the total sum changes
13:37 is if there's a change in productivity.
13:39 But you're right, I think my point is,
13:42 if you see what the Americans and the Brits are doing
13:44 in terms of attack on the Houthi rebels,
13:46 that will get resolved.
13:48 There's a bigger problem behind that,
13:50 which is to be solved, which is Israel and Hamas.
13:52 And then the proxy war being played between Iran,
13:55 the US, Israel, Saudi.
13:57 I mean, before this whole thing started,
13:59 if the Saudis, the Israelis, were about to have a bond of,
14:04 I won't say friendship, but at least an agreement of peace,
14:07 that would have been a game changer.
14:09 The attacks by the Hamas,
14:11 and maybe that was the cause of it, changed that,
14:14 but I think this is temporary.
14:16 I mean, I think the longest war seems to be the Ukraine war,
14:20 but people are forgetting about it, right?
14:21 I mean, I hope people don't forget there's a final answer,
14:25 and things are resolved,
14:26 and our nonstop flights to New York resume.
14:28 But I'm saying these are temporary blips.
14:31 The strength of our entrepreneurs,
14:34 and I think now backed by the government,
14:37 in order to support them, is unprecedented.
14:40 So I look forward to a phenomenal decade ahead.
14:43 - Cross fingers for all of that.
14:45 But lovely talking to you, Manish.
14:46 Thank you so much for taking the time out being with us.
14:47 - Thanks, David.
14:48 (dramatic music)
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