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00:00The macro picture is looking pretty good, okay.
00:03Perhaps the weather aside, it does seem like if you have been an exit from India,
00:07this is a good time to jump in.
00:09Well, first, thank you for having me on the program.
00:12And I think it's very hard to top Menko's synopsis.
00:18But I'll suggest that we're not completely out of the woods yet.
00:22Yes, the deal in the Middle East is a welcome relief.
00:26Yes, the policy measures taken by the government will certainly help.
00:31But we're not there yet.
00:33So just to elaborate on that, if I may, a little bit.
00:36So when you go back 18 months, the starting point is that India's valuations
00:41were two standard deviations above the historical averages.
00:44And you know and I know that valuations in and of themselves
00:46are never enough to cause the sort of sell-off that we saw.
00:50But what we then had was those valuations compounded by earnings,
00:55missing expectations for corporate India.
00:57So that was the starting point.
00:59And then it was compounded by a whole host of other issues,
01:03border conflicts, the rise of AI and the question marks that it had in people's minds
01:08about what does this actually mean for the Indian economy going forward.
01:13And then last but not least, the crisis in the Midwest, beg your pardon, in the Mideast.
01:19And as Menika said, this was not of India's making.
01:22But all of those combined to cause FIIs to head for the door.
01:27We now have FII ownership in India at a 14-year low.
01:31The rupee till recently was at a historic low.
01:35And that reflected the unease that investors had about the Indian economy.
01:40Now, coming to your point about whether this is a turning point or an inflection point,
01:47unequivocally, the deal in the Middle East is something we should all be cheering,
01:51not just for financial markets, but because of the underlying human tragedy
01:55that was unfolding as well.
01:57And so we should all welcome that.
02:00However, it does not take away some of the secular pressures that India faces
02:05on a longer-term basis.
02:07So corporate earnings have still not bottomed out.
02:11And while valuations have corrected from two standard deviations above historical averages
02:15and are now in line with historical averages,
02:18the reality is that 20 or 21 times, you can get growth elsewhere at a lower multiple.
02:24Right.
02:24So India is not cheap enough yet.
02:27And again, valuations are never enough for people either to buy or to sell.
02:31Well, it provides an exit or an entry point.
02:34Then you need catalysts.
02:35And for that, as Menka says, there's a very short-term one,
02:38which is what happens to the monsoon.
02:40So as we do it every time, every time at this point of the year,
02:44we look up to the heavens and pray.
02:46But beyond that, the question is, well, what does AI mean for the Indian economy?
02:51Will that locomotive of growth, which is IT services, slow down?
02:54What else is within our power to change?
02:57You talk about how earnings have not seen bottom yet.
03:00Do you need to wait for the bottom?
03:02If you take a longer-term perspective and you are talking about a country
03:05that is one of the fastest-growing economies in the world,
03:09fundamentals are intact.
03:10Why not?
03:12So you're right.
03:14And which is why, actually, if I may, despite all this doom and gloom,
03:18and even before we had the Iran deal announced,
03:24we had our India conference a couple of weeks ago.
03:27And we had a very strong corporate turnout.
03:30Two-thirds of the people who were there were either CEOs or CFOs.
03:33And that was actually kind of expected.
03:35But in my mind, I was not sure about whether investors would show up.
03:39And to my pleasant surprise, we had a 30% increase in investors
03:45attending the conference relative to last year.
03:47So what that tells you, like you, they're prepared to sharpen their pencils,
03:53do their homework, try to establish whether this is the right point at which
03:56to enter India.
04:00Now, what does that mean going forward?
04:02Is India still the fastest-growing large economy in the world?
04:06Absolutely, unequivocally.
04:07What investors want is what is that pace of growth?
04:10Is it sustainable?
04:12And what happens to IT services going forward?
04:15In fact, I wanted to add to that, Karaman, I get the slightly bearish view on India
04:20because I feel like there is this gush of capital moving to the West to make these big AI bets.
04:27It's not just the SpaceX IPO or the OpenAI or Anthropic IPO,
04:31but it's just the huge amounts of capital that technology is raising in the West.
04:36And I'm wondering, like, what it would take to make India look attractive in contrast,
04:42you know, to this wild buzz we're seeing around AI, right?
04:48So coming back to this, this is a really good question, by the way.
04:52And the good news, to my point, my perspective is a lot of the things that need to be done
04:57have already been started.
04:58Let me just elaborate.
04:59This question about whether AI is going to cause IT services to slow,
05:04we won't have an answer to for a while.
05:06So then the question is to say, well, okay, well, what can you actually do?
05:10And the short answer is reform.
05:12And now we all know that in India, adversity is the mother of reform, right?
05:16And what we've seen in the last six months is a very proactive, front-footed government
05:23that has struck a number of bilateral trade deals more in the last six months
05:27than in the 10 years prior to that and has driven reform in multiple areas.
05:33Now, individually, each of these reforms may not seem like a huge deal,
05:38but if you accumulate them, they actually amount to a fair bit.
05:42And my personal view is that this Reform Express is going to continue.
05:47And given that you have a political calendar, which is relatively clear,
05:51we've had the West Bengal elections behind us,
05:53we have the UP elections taking place next year.
05:55So the hope is that what you'll see is between now and the end of the year,
05:59this Reform Express continue.
06:00And my bet is we're going to end up with the larger wave of reforms cumulatively
06:05than what we had seen in 1991 since then.
06:08And that's something that investors actually are really quite interested in
06:12and keeping a very careful eye on.
06:14That's a hope that almost never gets fulfilled because the moment the dark clouds pass,
06:19you know, everyone in government seems to sort of step back and say,
06:22OK, crisis over, we have time to breathe.
06:24And then till the next crisis, you don't see the urgency again.
06:27But, you know, I still want to talk about capital coming back to India,
06:31both, let's say, in the secondary markets, but also in the primary markets.
06:34We now have a long pipeline of IPOs lined up, you know, waiting for better market conditions.
06:41But and just last year, NSE, GEO, they all looked very hot.
06:46They all look like these great business stories to tell.
06:49And now in front of AI, OpenAI, Anthropic, they all seem a little old economy.
06:54So I'm wondering whether money will come back, even for offers as interesting as these.
06:58So, look, you know, investors tend to be affected or influenced by tailwinds and headwinds.
07:05True.
07:05But I think they're far more sophisticated than that.
07:08That's not the only factor they look at.
07:09They will always look at bottom up fundamentals in every situation.
07:14These are very thoughtful, very rational individuals.
07:17And what I found is that it doesn't matter what your macro market circumstances may be.
07:22If you have good companies with sustainable moats around them, good execution track records, good corporate governance, there's always an
07:32appetite for it.
07:33Now, there's always a process of market discovery, and we'll have to watch and see what happens in the year
07:38ahead.
07:38But my view is that there's always a market for companies that meet those criteria.
07:43You know, I'm looking at the likes of Tata Consultants, Infosys right now, pre-market, getting dumped.
07:50I mean, back to the AI story.
07:53I mean, but some people argue that these software companies are also reinventing themselves.
07:58Absolutely.
07:59Adopting AI, and they could be worth investing in.
08:02How do you see these software companies playing out?
08:06So, that is the unanswered question, because the consensus view is that AI is going to drive lots of productivity
08:14gains.
08:14You're going to need fewer people to do the stuff that you used to do in the past.
08:17That consensus view seems to be validated by the fact that when you look at the big five software companies
08:23in India, in the prior decade, they added a million jobs.
08:26In the last year, they've lost, you know, 15,000, 17,000 jobs.
08:29So, it says, aha, that's what's actually going on.
08:32But to your point, there is a possibility that we're, first of all, we're only in the very early innings
08:38of enterprises adopting AI, right?
08:41The AI narrative till now has all been about LLMs bursting into popular consciousness, the data centers that need to
08:47be built to support them, the chips, all of that stuff.
08:50But the use case for AI, we're really only beginning to understand.
08:53And it's quite possible, and our analysts in India argue that actually the scope of work that these companies are
08:59going to be doing
09:00is going to be materially larger than in the past.
09:04So, to your point about whether this is an attractive point for investors and to the point of the 30
09:10% extra investors who came to our conference
09:13when they were sharpening pencils, that's what they're trying to wrap their heads around.
09:16So, don't write them off just yet.
09:17I think it would be far too premature to do that.
09:20I just want to continue this AI conversation.
09:23How are you looking at it from Bank of America?
09:25I mean, how are you preparing?
09:27How are you investing?
09:28People always talk about how it impacts hiring, especially at the lower level, the junior levels.
09:34Is that what you're seeing as well?
09:36No, categorically not.
09:38So, we have somewhere between 2,000 and 2,500 graduates who join the firm every year.
09:45And this year was no different.
09:47Fresh grads are joining the organization.
09:50But let me take a step back.
09:52I think the thing to emphasize over here is that technology is nothing new for Bank of America.
09:56We are an entity that is people and technology driven.
10:03That's always been the case.
10:05So, if you look at the first couple of decades of the century, the whole narrative was one about digitization
10:10and adopting new tools.
10:13We were very early adopters of what people today would be sort of thinking of LLMs with a tool called
10:19Erica, which is on each of our retail customers' mobile phones that helps them answer questions about their accounts.
10:27In the first half of this decade, we spent a lot of time doing pilots and running pilots on AI
10:34to try to understand what was going to work for us.
10:38And through last year, what we've been doing is rolling AI at scale across the enterprise.
10:43So, every one of our 213,000 teammates have these AI tools.
10:49And like I said earlier, we're in the early stages of understanding how enterprises will use this to drive both
10:55productivity as well as revenue enhancement.
10:58And Bank of America is right in the heart of that whole process.
11:01Okay. If I can continue with your business, but I'll go back to the deal-making side of it.
11:06What's the outlook as we stand here in the middle of June with no rain on the IPO pipeline, on
11:13the M&A pipeline?
11:14Last year was a great year for financial deals, for pharmaceutical or health care deals.
11:19What are the hot spots you're seeing both in IPOs and in M&A?
11:23So, there's two things I won't be able to speak to.
11:25First is the rains because your guess is good money.
11:28And the second is when is the GOIPO coming, right?
11:32And I won't speak to specific situations.
11:33But what I will say to you is that I see interest in India as being undiminished,
11:41whether it was about the investing clients that I talked about who showed up in a larger proportion than last
11:45year,
11:46whether it's inquiries who are coming to us from our global corporate clients,
11:51or whether it is our Indian corporate clients who are thinking about their strategic moves or their next steps.
12:00So, I'm not seeing any diminution of interest.
12:02So, we'll cross $20 billion in IPOs.
12:05I mean, that's what we did last year.
12:06Do you expect the second half will make up?
12:08Because we're at about $3 billion right now in the first half.
12:11I won't be able to speak to those numbers.
12:13But I just want to follow up.
12:16Given the huge IPOs in the pipeline, I mean, there's reason for foreign money to be coming back to India.
12:23Absolutely.
12:24And so, like I said, when there are specific instances which meet those fundamental criteria,
12:33investors then don't focus on the headwinds and the tailwinds.
12:37What they will focus on is the issue at hand or the specific situation at hand.
12:42And I don't think that changes.
12:44And by the way, when you look at the, as best as you can tell from public data,
12:49looking at the transactions that have taken place in the first half of this year,
12:52or even in the waning part of last year, we had equally strong participation both from FIIs as well as
12:59domestic funds.
13:00In terms of M&A activity, what are you looking at?
13:03How optimistic are you?
13:04Any numbers to share with us?
13:06Yeah.
13:07Also, before you go, please, please, before you go, just please tell us when the GOIPO is coming, right?
13:12He will not answer that question, but if you give an indication.
13:16I won't be able to speak to specific situations.
13:18And in terms of M&A activities?
13:21Like I said, what we see is lots of conversations taking place at a strategic level
13:27between our folks in India and our clients overseas.
13:31I'll be able to speak to it.
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