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00:00We're seeing an AI-related stocks meltdown pretty much across global markets today.
00:06Could India come out on skates if the bubble bursts,
00:10given that foreign investors have been fairly down on India this year?
00:16Well, Hass, that's a really interesting question.
00:19And let me put it in the shortest possible answer that I can give you.
00:22Yes, India could potentially be a beneficiary.
00:25And we've seen what is called the AI hedge trade already play out in a wee bit in India's favor,
00:34because really, India has absolutely no AI play to boast of.
00:39Now, this country will definitely be one of the world's biggest consumers of AI.
00:44But so far, we have no hyperscaler stocks and no significant data center capacity stocks to talk about.
00:52So, yes, if there is a burst in the AI bubble, there's a good chance that people will look for growth elsewhere in the world.
01:00And India potentially presents that opportunity.
01:04And in fact, that allows me to talk to you about, you know, Neelkant Mishra,
01:09who joined us at Bloomberg's first subscriber event.
01:12Now, most of us think that, you know, it's been a terrible year for India,
01:16what with Trump's tariffs, the U.S. trade deal still pending, China hostility, middling growth.
01:22But Neelkant Mishra disagrees.
01:25He says, in fact, and I quote Hass,
01:27the real story of India this year is how the reversal of monetary tightening
01:31and the end of hard fiscal tightening is driving a cyclical recovery in the economy.
01:38Mishra is the chief economist of Axis Bank and also a part-time member
01:42and the prime minister's economic advisory council.
01:46Listen in to what he had to say.
01:47I've been expecting this time correction for a while.
01:53How long will it continue?
01:56Since you got it right with the expectation.
01:58So you get it wrong, you get it right, market forecast, you know, you hit and miss.
02:02So, but I think that in the next 12 months,
02:07the 12-month forward earnings will start to rise
02:09because as the economic recovery comes in,
02:11remember that in the last 12 months,
02:13India is among the worst markets in terms of earnings revisions.
02:17So we saw a 12% cut in earnings, which is among the worst in large markets.
02:23And as a result, you know, the market remained stagnant.
02:26Everyone else went up 20%.
02:28We were still stagnant.
02:30Then our rates in various benchmarks fell.
02:32A lot of passive funds had to then pull out of India.
02:36So all of that has happened.
02:37But that's behind us.
02:38As the economic recovery starts to come in,
02:41and when I was in the US and UK meeting investors,
02:46I was shocked to see that the short-term investors were calling India an AI loser
02:53and Taiwan and Korea the AI winner.
02:55And therefore, oh, India is a funding short.
02:57That, you know, you're short, you get the money and you invest somewhere else.
03:01And so I think that will start to change as the economic,
03:04the roots of the economic recovery start to show up.
03:08Or at least the momentum becomes more visible.
03:12And people realize that the improvement in October and so far in November
03:18was not just because of GST and it's going to last.
03:20As that starts to become more convincing,
03:23I think foreigners, at least on a relative basis, will start to come back.
03:26All right.
03:30So Mishra is anticipating more than 7% growth.
03:32And one of the biggest beneficiaries of a fast-growing economy
03:36is the country's financial services industry.
03:39Joining us this morning, Jairam Sridharan,
03:41Managing Director and CEO at Piramal Finance.
03:44Jairam, thanks very much for being on Bloomberg.
03:46Your industry is being buffeted by two big changes.
03:49One is a revival in growth and therefore a revival in credit growth.
03:54And then a surge in deal activity, especially foreign investment
03:58and potentially the merger of small public sector banks.
04:02Which one is the most significant trend, according to you?
04:05And how do you see it play out?
04:08Good morning, Mehra.
04:09Thanks for having me, Minka.
04:11As always, fundamentals trump deal activity.
04:15So what's fundamentally happening in the economy
04:18in terms of growth, credit build-out, market structure,
04:24is always go to trump the kind of...
04:28We are excited about the deal activity, don't get me wrong.
04:31There's a lot of interesting things happening
04:34and suddenly long-term investors seem to have discovered India
04:37as a potential source for deep investing.
04:42And that's a great thing.
04:44But the fundamental growth in the economy,
04:47I saw Neil Kunt speaking a little bit earlier in your piece
04:52about kind of earnings growth that he expects to start seeing,
04:56and I fully agree with the points that he was making,
04:59that when you see the fundamentals of the economy
05:03and when the economy goes back to chugging along
05:06at 6.5%, 7%, 7.5%,
05:08that is always going to drive credit.
05:12Over the last 50 years, lending in India has grown
05:17at a nominal rate of 15, 15.5% annualized
05:21over a 50-year period.
05:23That's an incredibly long period for mid-teen growth
05:27to be maintained.
05:29However, in the last few years, the last 10 years,
05:33that rate has come down to about 11%.
05:35So, growth, nominal growth coming back
05:38and that resulting in greater credit growth
05:41is always going to drive our sector a whole lot more
05:44than the deal activity.
05:48Yeah.
05:49Jaram, can you talk us through what specifically you expect
05:52over the next six months to one year
05:54and which pockets of the economy you expect
05:56some of this growth to come from?
05:57Is it retail lending?
05:59Is it lending to small enterprises?
06:00See, if you look at the Indian economy
06:04over the last few years,
06:06there have fundamentally been two main engines
06:08that have driven the economy.
06:10On the one hand, there is government spending
06:12and on the other hand,
06:14there is personal consumption expenditure.
06:16Those are the two engines
06:17which have actually driven the economy a lot.
06:20What has happened over the last year or so
06:23is government spending as an engine slowed down,
06:27starting from just before the elections
06:29the general elections
06:31and then the election results coming up
06:33with slightly surprising and soft results
06:36on the president government
06:37and then them having to try to find their own feet, etc.
06:40So, over the last calendar year,
06:43there was a six, eight, nine month period
06:45in which you saw government spending go soft
06:47and that meant
06:49of the two engines that the economy is working on,
06:51one of them has gone soft
06:52and that was creating some problems for the industry.
06:55That has now started coming roaring back
06:57and that's always going to be a great thing
06:59for the economy.
07:01Consumption is patchy
07:04and we're seeing some pockets of softness
07:06in rural India, etc.
07:08But mid-market India is doing really well.
07:11Both the large cities and rural India
07:13are probably kind of still a bit soft,
07:16but middle market India is doing really well
07:18and we are seeing a lot of pickup there.
07:22You've seen some of the activity
07:24that's gone on recently
07:26in terms of car sales
07:27and that shows you
07:31that that consumption
07:33and that ability to invest
07:34small ticket capital expenditure
07:37from the part of the household
07:38is very much back.
07:41Jerem, you talked about this massive growth.
07:43I don't want to be a party pooper,
07:45but could lenders be underestimating
07:48credit risk on the back of that?
07:50If anything,
07:54I feel lenders have been
07:58over the last year overly cautious.
08:01I think the country did go through
08:04a little bit of a credit risk jolt
08:07in the middle of last year.
08:09And what that did is
08:11a whole lot of people
08:12pulling their hands back,
08:14a whole lot of lenders
08:15bringing down lending.
08:17The sector level
08:19kind of lending growth
08:21has come off starkly,
08:22particularly in unsecured credit,
08:25in personal loans,
08:27small business loans, etc.
08:29Things have come off
08:30pretty starkly.
08:31And in fact,
08:32in some of those sectors,
08:34IOI growth has turned negative.
08:36And this is a reaction
08:39to what I was saying before,
08:40which is government spending slowdown
08:42and the resultant increase
08:45in credit risk
08:46that the sector saw,
08:48everybody reacted very, very quickly.
08:51And that's also leading
08:54to a very soft sectoral credit growth
08:58right now.
08:58If you see credit growth as of today,
09:00in the country,
09:01it's running at about 10%.
09:03For a country
09:04where currently
09:06nominal growth
09:07is also about 10%,
09:08which means a credit growth
09:09to GDP growth ratio
09:11of one is to one.
09:12Historically,
09:13this has been 1.25
09:14or 1.3 is to one
09:15in India.
09:17In fact,
09:18in many developing economies,
09:20the argument made
09:21is that credit should grow
09:22at 1.5 times
09:23nominal GDP growth.
09:26But India currently
09:27is growing at 1x
09:28nominal GDP growth.
09:29That shows you
09:31the conservativeness
09:33that has seeped in
09:34into the lending sector.
09:36Jaram,
09:37speaking of optimism
09:38and excitement,
09:39we know that
09:40large foreign banks
09:41are getting really excited
09:42about the Indian
09:43financial services sector
09:45as well.
09:45What do you make
09:46of that trend?
09:47Is that likely to continue?
09:49What do they bring
09:49to the table?
09:52See,
09:52India is
09:53overall capital deficit.
09:55And in particular,
09:56we are deficit
09:57in long duration capital,
09:59long 10-year capital.
10:01Indian capital expenditure
10:03is largely funded
10:05by banks
10:06who themselves
10:07are largely funded
10:09by consumer deposits,
10:10which are three-year tenor.
10:11And an argument
10:12that I often make
10:13is that you cannot
10:14build a 30-year country
10:15with three-year deposits.
10:17That doesn't work.
10:18There is a complete
10:19mismatch here.
10:20So India needs
10:21longer gestation capital.
10:23Pension industry,
10:24insurance industry,
10:25et cetera,
10:26and India,
10:26which do tend
10:27to be long gestation capital,
10:28have generally been small
10:30compared to the needs
10:31of the economy.
10:33So what are the sources
10:34of long duration capital
10:35that can get unlocked?
10:37There are two main ones.
10:38One is domestic promoter capital,
10:41a lot of which
10:42is locked up
10:42with domestic promoters.
10:43And two is
10:44international capital.
10:47The government clearly
10:48over the last year or so
10:50working with the regulators
10:52has chosen the latter.
10:53The government has said,
10:53you know what,
10:53we're going to find ways
10:55to attract long-term capital
10:59into the financial services sector
11:01to help us build this sector
11:03which is kind of foundational
11:05for the rest of the economy.
11:07Right?
11:08And to that extent,
11:10a lot of this,
11:11a lot of the approvals,
11:12the speed of which
11:13you have seen come
11:13over the last six months,
11:14are very welcome
11:16in that they are,
11:19they are a form of
11:20a large-ticket,
11:22extremely patient
11:23international capital
11:25entering into the
11:26foundational sector
11:27of financial services.
11:31Jairam,
11:31but I'm sure that
11:32this will change
11:33the competitive landscape.
11:35Really,
11:35what kind of pressure
11:36does it put
11:36on the rest
11:37of the finance services industry
11:39like your company?
11:40And are you also looking
11:41for external investment?
11:43India needs
11:48many more
11:49financial services providers
11:50and we can deal
11:53with a whole lot
11:53more people coming in.
11:55You know,
11:56it's little appreciated
11:58that over the last 10 years,
12:01the number of banks
12:02in India
12:02has gone down,
12:03not up.
12:05And that reduction
12:08in sort of competitive intensity
12:09is rarely spoken of.
12:11Why has it gone down?
12:11It has gone down
12:12because the government
12:14in particular
12:15has taken on
12:16a big charter
12:17of merging
12:18public sector banks
12:19and where there used
12:20to be 25 public sector banks,
12:21there are currently 10
12:22and probably will be
12:23lower number
12:24going into the future.
12:25And as that
12:27consolidation
12:29has been happening,
12:30that consolidated group
12:31has been losing market share
12:32which shows you
12:33that competitive intensity
12:34has not increased a lot.
12:35India needs
12:36many more providers
12:37of credit and capital
12:39for the economy
12:40to continue growing.
12:42That point is well taken.
12:44Jaram,
12:44are you looking at,
12:46you know,
12:46or are any investors
12:47quoting you?
12:48Because I know
12:48there is significant
12:49heightened interest
12:51in the non-bank
12:52financial space as well.
12:55Yeah, yeah.
12:55We are very popular
12:56right now
12:57and we are getting
12:59a lot of interest
13:00and a lot of calls coming.
13:01No, I'm afraid not.
13:05But it's, you know,
13:07it's a thing that is,
13:10it's a trend
13:11that's very, very popular
13:11right now
13:12and we are one of the
13:12big large names
13:13that's out there
13:14and we've kind of
13:16If you can't give us a name,
13:18if you can't give us a name
13:19of who's quoting you,
13:20give us a timeline
13:21for a deal announcement.
13:25Oh, that's even harder.
13:27See, the way I say this is
13:29there are families of players
13:33that are showing interest
13:35and it's similar
13:36to what you've seen recently,
13:38kind of large sovereigns,
13:41you know, sovereign funds,
13:44kind of, you know,
13:45long duration,
13:46you know, pension capital.
13:50Asset classes are families
13:51like that
13:52and of course,
13:53kind of international banks
13:54who want to make a presence
13:55in lending in India.
13:56Those are the kinds
13:57of families
13:58of investors
14:00who are showing
14:01a lot of interest.
14:02At PNML Finance,
14:03we are super well capitalized
14:05right now
14:05and we are growing
14:06at upwards of 25% annualized.
14:08So, we are quite happy
14:11where we are right now
14:12and we'll let our current story
14:14play out a little bit more.
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