Speaker 1: 0:01

Uh, and in many, many countries , uh, we are just waiting for seeing a recessionary outlook in the us . Uh, and growth in Europe is to, to say , the best an , uh, China is China growth outlook is accelerating more than expected. So they've been quite good in predicting their target of 5%. They're keeping 5% as growth around, but that means that the economy is the , uh, almost in recession as well, right? I mean , 5% for China means that we have quarter , quarter growth. That is Worthing . We recession. Uh, so India sends out, because it's probably the , one of the few countries now, I mean , I cover merger markets now, I can probably miss some countries, but it's a country where growth dynamics and growth momentum is the best. Uh , and when that translates in , uh, interest for equity, market means earnings. And this is one of the reason why , uh, India remains one of the most interesting story in terms of equity , uh, investments. The problem is that everyone knows it. Mm-hmm . <affirmative> , and that is reflected in the valuation , right? In the sense that clearly it's not the cheapest , uh, countries in , in the , in across, not only across the emerging markets, but in general, globally speaking, where to invest. So we have to go a bit beyond , uh, uh, valuations. Yeah . Regulations have , valuations have reduced, but in any case, in the remains an expensive , uh, uh, countries , valuations wise , um, returning to growth, I mean , uh, uh, after the covid, we had many , uh, uh, let's say cycles in different countries where we had expansion , we had acceleration. India's been probably one of the few countries, if not the only one, to my knowledge, where the robust cycle has remained there since the reopening . So we had very, very light , uh, uh, softening maybe early this year. But honestly, it was a downside , uh, cycle that we have seen , uh, so far in the , in the economy. So , um, and, and , uh, and , uh, with the pandemic , uh, but even with the war, India , uh, uh, came out as a counter that is benefiting by different aspects. So it's benefiting on a geopolitical point of view because , uh, it's quite insulated as , uh, uh, as, as country from all geopolitical tensions starting from China and US , of course. And indeed, he's benefiting from the China plus one strategy , because if you want to diversify , uh, even in terms of production , uh, uh, India is a , is a good , uh, uh, country to, is a , is a good , uh, candidate. But , um, even in terms of , uh, uh, reforms , uh, even though the macro reforms are still missing, I don't know . The land reform, for example, to make , to , to say the , the , the one that is one of the biggest in reality , uh, at micro levels , the government has done a lot. And indeed , uh, uh, if you think about the banking sector, if you think about the , uh, corporate sector, so how much it has the leveraged , uh, in the latest years , um, in India, Indian corporates are today in the kind of sweet spot to embark in a , uh, uh, an important investment cycles that is missing in India since a while, because the investments in India have been quite lackluster in the , in the, in the last decade. Uh , so what conditions , um, corporate conditions, banking sector conditions are conducive for an important investment cycle . So , uh, digital infrastructure, physical infrastructure, China plus strategy , strong economic momentum. These are all things that are not common today in many countries. And that's the reason why probably India is a good candidate. When , uh, we look at the , uh, other investments in particular in, in, in equity , uh, policy framework is sound . Uh, if you remember I many 10 years ago, India was , uh, one of the fragile five , uh, today , um, a part that in , in , with many other, I mean , even Brazil, Indonesia not fragile five anymore. Uh , but , uh, the adjustment that in has done, in particular on the fiscal side in the latest two, three years is impressive because normally am mid middle of the year, middle of the fiscal year, India was in a position of starting to think how to reduce the deficit. Vis-a-vis the target is at least two , three years that we are not anymore in that position. Of course, growth matters, and growth is the most important thing , uh, for fiscal revenues, but even to accommodate all the labor force, the young labor force that the country has, that is an opportunity, but it's even a challenge.

Speaker 2: 5:17

Yes. This was one of my questions because there's a lot of talking about the demo , what they call the demographic dividend, but that's, I mean, if there's no jobs for young people, it's, it's , yeah . It's , it's more of a , of , it's , yeah . You could say it's more a problem than , uh, than , uh,

Speaker 1: 5:37

Than an opportunity. Than an opportunity than a dividend. Yes. Yeah. No , no, exactly. Is is important to analyze both aspects, but that's why, again, we go back to growth. It's, it's growth is really the most important thing . Even, even when I re the rating agency , um, assessment on the country , uh, at the end of the day , uh, India , uh, the government debt is quite high, is one of the highest in emerging markets, but as long as growth is nominal, growth is double digit, this is not an issue or is less an issue than for many other countries, right? Again , so growth matters for fiscal growth, matters for employment, growth matters for , uh, uh, rating at the end of the day. And, and , and so far , uh, earnings of course , I'll say

Speaker 2: 6:26

Yes. But , uh, with regards to growth, I mean, do you expect it to be a sustained period of growth? Because I think that's the main question then , right?

Speaker 1: 6:36

Mm-hmm . Mm-hmm. <affirmative> , okay. Growth , uh, drivers , um, as it is , I mean , clear looking at the figures , uh, clearly domestic demand is driving growth here more than , uh, external demand. But this is not a pe India , India peculiarity, because, I mean, this is happening around the world . I mean , global demand with all these cars growth that we are seeing around is clearly a drug , uh, external demand growth more than , uh, uh, uh, than anything else. And indeed, even India is not immune by that . Uh , by that , because domestic demand, namely consumptions and even investments, <laugh> , sorry , I will say are the ones driving growth. And indeed, if you want , um, sorry , I have some, that's fine . But , um, indeed, if you look at the economic figures for India in the latest couple of years, the weak point was the external position of India, because current accounts started again to , uh, um, deficit to widen. And this is due to weak demand coming from abroad. But even strong demand coming from domestic , uh, uh, economy because imports are high, high and , uh, um, exports are low relative terms . And that has been opening up a kind of external , uh, external weakness is now moderating this , uh, this kind of , uh, current account deficit touched , uh, more or less 3% of G D P last year is now coming back towards a more moderated level. But I mean, to me, when the current account deficit is driven by strong domestic demand, I define it as a kind of good current account, if you , right . Uh , because at the end of the day, it's even strength of imports that last year was driven not only by strong domestic demand, but e even by high energy bills that clearly has been impacting India. And today we can say that it's less of an issue , uh, high oil price considering the privilege status of trade partner that India has with Russia. And so enjoying , uh, uh, different , uh, uh, uh, prices for oil , uh, uh, allowing even to keep the current account deficit impact coming from commodities more , uh, uh, contained. Um, so overall , overall , these are , are all aspects that are keeping the , uh, the country , uh, on a kind of sweet spot. Plus, on top of that, there are interesting measures , uh, uh, introduced by the government, or the P L I scheme is one of them that is probably a catalyst , uh, in terms of investments for , uh, for the country . For the country. And the sectors under the P L I scheme , uh, have been increasing. They started with three sectors. Now they are around 14 sectors. And that has to do, if you want , uh, with your last question on, on the , on, on sectors and stocks, right? Um , India needs to go beyond , uh, IT services , uh, pharma , uh, uh, and, and , and chemicals, right? And this is what they're doing even through the P L I scheme that have been identifying specific sectors where India wants to grow again ,

Speaker 2: 10:07

You , you mean that they want to Yes . Uh , sort of insource the sectors , uh, from China, right? Isn't that the China main purpose of China , the P l I scheme, or , uh, am I wrong? I mean, they're no , is ,

Speaker 1: 10:20

Yes. Yes. Okay .

Speaker 2: 10:22

So the , the , you mean with , uh, solar panels, electric vehicles , uh, mm-hmm . <affirmative> mm-hmm . <affirmative> , uh, they're aiming at , at sectors like this, right? To , uh, to expand.

Speaker 1: 10:32

Yes. Yes. But this is not only , uh, uh, because they want to take share from China. Um, uh, you can read, I mean , maybe is a kind of , uh, uh, uh, extreme proxy, but mm-hmm . <affirmative> , India, like any other country, is trying to increase his strategic independence mm-hmm . <affirmative> , right ? I mean, we are not talking about the I R A act here for India with the P L I scheme, but I mean, each country, even European countries are trying to , uh, answer to this new wave of sub subsidizing space , what India is doing with P L I . And of course, you try to focus in sectors that , uh, uh, uh, can offer good opportunities in terms of investments, but even in terms of strategic independence, right? So you are moving towards an net zero transition. So you have to move more towards greenfields , uh, you have to, so solar panels, these kind of investments, you have to shift from IT services to IT hardware. And this is important for , uh, uh, uh, strategic military , uh, independence. And with the P L I scheme, there has been a huge increase in terms of electronics. So not only , uh, uh, IT service again, but other, other , uh, sectors related to electronics. And I think probably this is the sector where there's been , there have been more applications for the P L I schemes in , uh, in , uh, in, in India. So, but this is , uh, let's say it's not very much peculiar to India. I mean, this is something that many countries, most of the countries around the world are trying to, trying to do .

Speaker 2: 12:13

True . Can, can I take you , uh, back to , to my , uh, previous question about , uh, how

Speaker 1: 12:20

Yes .

Speaker 2: 12:21

Sustainable, you could say that the , the period of sustained growth is because in the past , uh, well, there's, there have been , uh, uh, uh, in the past, there have been a couple of times , uh, where people said that , um, India is the place to invest in, and the momentum would start and it would then suddenly die out. Why? Why would it be different this time?

Speaker 1: 12:48

Mm-hmm. <affirmative> in terms of , uh, uh, sustainability , uh, uh, I mean, I'm, I'm, I'm more a kind of macro analyst , top down analyst than bottom up analyst . Mm-hmm . <affirmative> . So to me, in terms of sustainability, this is true when , uh, uh, uh, we have a , a virtue sustainable investment cycle , and that is the first , uh, condition to make , uh, this , uh, um, allocation , uh, sustainable mm-hmm. <affirmative> , but then at the end of the day, is not everything in Indian's hands , uh, because even the , uh, the investors, the risk perception that investors have and the preference that investors have are important, and they're not always depending on what India does, right? And in this sense, in this sense, the comparison with China is important in the sense that normally India and China are kind of binary choice for emerging markets investors, when you want to invest in big Asian countries , uh, on the equity, on the equity side, and this is in , in , is honestly without any doubt. You see that when China goes , uh, well , uh, India is suffering , uh, uh, the opposite, not because the allocation by the global investors, not the specialized , uh, uh, Asian or country investors , uh, shift from one country to the other because of global , uh, considerations mm-hmm . <affirmative> and not Indian or China only consideration. So, first of all, is the risk assessment investors do vis-a-vis emerging markets. Then when you enter emerging markets as global investors, you look at the main countries in the different regions, so latam , uh, or Asia, and in Asia, you go to China or India, according to what is the assessment you have towards the global economy, the more you want topo be exposed to the global economy, the less probably you , you choose India, right? Because India is more a domestic , uh, uh, story , uh, that now this things can change, but this is still happening. It is not there yet. So India remains a , a very good , uh, domestic story. When you want to be protected by some global factors on top of growth, you are even geopolitical factors . So even when you want to be protected from a geopolitical point of view, then clearly India plays better than , uh, mm-hmm . <affirmative> , uh, uh, than China, Europe , Europe Association . So the risk gap between , and that will continue to exist.

Speaker 2: 15:19

Yes. Okay. Um, well , um, I've, I've mean , India is sort of trying to become you , well, perhaps not the factory of the world, but perhaps the , uh, one of the factories of the , of the world and also is competing with China , uh, in the role of course. Uh, and of course there's some multinational who , who already have a , a China plus one strategy with India included. But how likely is it that India would surpass , uh, China in its ambition to

Speaker 1: 16:01

Yeah, yeah. Or I mean,

Speaker 2: 16:05

Match even up ,

Speaker 1: 16:06

They are two, two completely different countries mm-hmm. <affirmative> , sorry , the line was a bit Yeah,

Speaker 2: 16:10

No worries.

Speaker 1: 16:11

Uh , yeah, they are, yeah, they are two completely different countries. So , uh, I don't expect India will take China , uh, place in the , uh, um, uh, value value chain. Uh, it's, it's a complete political count , different political country. Uh, the , the , the governance is, is , is completely different. Uh , but that doesn't mean that India doesn't have the cards to , uh, uh, uh, grow and to become one of the most important growth contributors , uh, uh, to the G D P in the world. And actually, it's very likely that with the agenda that we have , uh, in China and, and in India, this is, this is even happening , uh, because it's what is wanted by the D d D government. Not , not that the China governments wants China less powerful or , uh, uh, uh, important, but the kind of common prosperity agenda that they are following, because still we are talking about that. And the fact that they refuse to re-engineer growth through the real estate sectors as they used to do in the past, means even that they have to land on growth, potential growth that is much lower than what they had in the past, right ? Mm-hmm. <affirmative>. So it's not just a , a kind of cyclical recession that we are witnessing in China. It's really a change of models that is moving China far away from seven 8% of real growth that we had in the past decades to something that will be probably lending to half of it. And that clearly will, will mean that India growing a 6% of pot as potential rates of growth can , uh, uh, reach and , and surpass China in terms of growth contributions in , uh, uh, in, in , in some years. Uh , and, and this is , uh, this is what is , uh, is honestly happening and even helped by the , uh, uh, political agenda in the different countries.

Speaker 2: 18:11

Okay. Um, well , also, what, what's , um, well, perhaps surprise me is , is , uh, if you look at the Indian stock market and the foreign holdings in the stock markets , it's about 20% compared to , uh, for the s and p 500, for example, 40% almost double the size. Um , what, what, what , what's a , I'm not an expert, but what does that number tell you

Speaker 1: 18:42

This has to do ? Uh , I think it goes together with growth and investments, right? I mean , um, um, together with these , uh, investments cycle that we should see in , uh, in, in the country , uh, there will be even an increase in size in , uh, India stocks in the , in the global, in the global market . Um, India has , uh, uh, not , not , not very much on the equity markets , but is a , as a , a kind of , uh, uh, how can I, I say in English is a , um, a kind of cautious stance in terms of opening up. Um, and we know that even more on the fixed income side probably than on the , uh, um, than on the , uh, equity side. Because at the end, at the end of the day, I think the country , uh, strategy is to attract for direct investments much more than financial investments. They want money from abroad, has sticky money. They don't want hot money flowing away, you know, like that, because maybe the investors change their mind , uh, vis-a-vis their asset allocation mm-hmm . <affirmative> . So this is the real strategy they want, and even with the p l i , uh, schemes, they have in mind, one of the , uh, targets they have in mind is to increase the F D i , uh, uh, uh, sides , uh, in , uh, in their balance of payments much more than the financial financial flows. So they're keen , uh, to , uh, accept foreign money and foreign financial flows , I would say more on markets than on the, on the fixed income markets. But the real target are foreign direct investments. So foreign companies coming to India, investing in India with new factories .

Speaker 2: 20:38

Okay. We believe we , uh, I haven't asked the question yet, but there's a lot of comparison between China and India already. Um, if you look at the numbers, you could say the, the, the Indian economy is, you could compare it with China around I think, 2007 or something like that. Is it a , if , if you look at G D P and , uh, uh, a capita per et cetera , um, is it a fair comparison in any way?

Speaker 1: 21:16

Um, yes. I mean, what , uh, been missing since 2007 in one country, that was probably extremely pushed in the other were exactly investments. Mm-hmm. <affirmative> , uh, in , if, I think if I look at India last decade, investments have been quite moderate. While probably in China we went to the opposite. So there was a kind of over investments , uh, push mm-hmm. <affirmative>. Now, today we are in a , in a position where on one side , in one country, you have to , uh, uh, change the growth drivers , uh, towards the more sustainable model. This is China mm-hmm . <affirmative> , meaning that this kind of investment push, in particular in certain sectors has to reduce. And, and you have even to diffuse the financial risk that you have , you have been increasing with the accumulation of leverage, in particular corporate , uh, and s c e , if you want level of local government, while in India, you are in a clean position to start this , uh, investments , uh, investment push. So in this sense , uh, yes, the comparison can, can be , uh, uh, fair, but again , uh, I don't think India is going to do the things that China has done on the investment side in particular, sector wise is, is a completely different, different story. And then in , in this sense, there would be less risk to incur in a , in a , in any kind of over leveraged economy and very much concentrated in, in, in specific sectors. Even if you look at the Indian equity markets , uh, the level of concentration in few sectors is one of the lowest in Asia. Uh, probably Thailand is the other country where there is less concentration. But if you think , if you , if you take the five, most, five big sectors in the Indian equity market, you, you get to around 70% of the index. That is one of the lowest concentration in comparison with other countries where the , uh, markets where the first five sectors almost , uh, uh, cover the entire, the entire index. So I don't think we are going to run the risk to have a new China or over-leverage country with , uh, with India on , on the private side in particular and , and corporate side.

Speaker 2: 23:43

Makes sense. Um, but if India is a totally different story, wouldn't it be wise for investors to include exposure to both economies , uh, in their portfolios? That's what you, that's what you would advise as well? Uh ,

Speaker 1: 24:02

Yeah. Yeah, yeah . Yeah . Okay. I don't know if you're familiar with , um, our publications, not beyond India, but , um, in , uh, uh, March, April , uh, this year, we run our capital markets assumption , uh, uh, um, that is normally a million long term , um, document. And , uh, uh, and indeed , uh, uh, when you take into consideration the net zero transition in your investments , uh, opportunities, and as location , you'll find out that in a world where growth will be probably lower, but more sustainable, you will have a much flatter , uh, efficient frontier where , uh, when you want to take , uh, when , sorry, when you want to get some returns, you have to take more risk. That means that emerging markets component of your asset allocation has to increase. And asset allocation com , let's say component in terms of equity index, China and India, both has to increase in your future asset allocation in order to get to distant , uh, steady return in a flatter , uh, efficient frontier. So yes, the answer is , uh, is, is yes.

Speaker 2: 25:15

Okay. One , uh, short, you could say short term capital assumption from my side , um, uh, especially the first four months of the year, the Indian stock market hasn't performed that well, and one of the main reasons was of course, the , uh, you could say the, the bar with the Adani group. Uh, do, do you think those incidents could potentially scare foreign investors away ? Is it likely to happen more often just like it happens in China once in a while? Of course.

Speaker 1: 25:55

<laugh> No , exactly, exactly. That , that happens everywhere, right? Not only in India, but , uh, yeah. Okay. I mean, this year has been , uh, uh, I mean, there are so many events that have been , uh, driving the equity markets performance. Uh , um, okay, first of all , first of all , uh, uh, early 2023 was the , uh, quarter of Chinese reopening. Uh, um, the government , um, changed the , uh, let's say the reopening , um, rules , uh, in December last year to the reopening trade was , uh, uh, the market rally , uh, that was related to reopening training emerging markets. But even if I remember well , to some relative more dovish expectations by the market vis-a-vis the Federal Reserve were fulling the equity markets. And I think China was favored over India, right? Then we had , uh, uh, in February, early February, beginning end of December, India, Dan case that was clearly , uh, making the Indian case even, let's say cloudier than , uh, uh, than better . So even when the reopening trade was fading away, there were these kind of political or governance , uh, um, events that were , um, taking the investors away. But this is even, even due to the fact that , uh, the , um, with February and the reassessment of these ations vis inflation in the US federal served in general, the appetite for emerging markets was not there. Yeah . Regardless, it was India, it was China that clearly there was even a done case . There was even the reopening trade that was short lived , uh, uh, whatever. But the emerging market, the appetite for emerging markets by , for , for investors was really very soft. Uh, and, and indeed, the , the , the markets, the markets are really in , particularly in the US more than emerging markets still, we are in a situation where , um, as I said at the very beginning, scars and poor growth doesn't help emerging markets , uh, in general doesn't tell emerging markets equity doesn't help emerging markets effects. For example, you can go to the fixed income because what the central banks are doing, if you want, but on the equity side, you are more cautious, right? Uh , so it's a combination of events , uh, uh, things like Adani are important. I can't say that are not happening anymore. What I can say that is that they don't happen all only in , uh, in , uh, in India. I mean, governance issues , uh, I mean, we've seen S V B in the us so the bank in the mini mini banking crisis, we have other,

Speaker 2: 28:48

We have Wirecard in Germany, so it's

Speaker 1: 28:51

In France ,

Speaker 2: 28:51

It's happening after . I agree.

Speaker 1: 28:53

So,

Speaker 2: 28:55

So , so , so what we just , but ,

Speaker 1: 28:56

But , but of course. Yeah.

Speaker 2: 28:58

So, so what, what would be your main advice to somebody who considers investing in India in the Indian stock market?

Speaker 1: 29:11

Uh , I mean, the things to monitor are , uh, again , sustainable growth, political continuity, because even these schemes that are in place depends on the fact that the government will , uh, uh, uh, will continue to be and promote this , uh, this kind of , uh, uh, uh, initiatives. Um , having the idea , the idea is that you have to be comfortable with India story and to , to get the India story , check all the points that we were , we were, we were making. Uh, but as I said before , um, uh, in a way , um, you are even to consider the global factors. But overall , uh, uh, a kind of , uh, um, long position in India and stable position in India, even because of the factors that I was mentioning before in terms of asset location and returns , um, I think is what , uh, is even suggested by our analysis and , uh, and , and model . So the story and the global factors to, but this is not only true for India. I mean , this is to overall , uh, for the equity investments , uh, across emerging markets . So valuations matter , uh, growth matter, earnings and , uh, risk assessment , uh, come from the global investors when you want to play a more tactical asset location to the country.

Speaker 2: 30:41

Okay.

Speaker 1: 30:42

I don't know . It's a combination of many factors that you have to check. It's not only No ,

Speaker 2: 30:47

No , no . I understand. As it always is. Uh , my final question, if India is truly the , you could see the oasis in the global deserts, what are the potential sense storms to watch then ?

Speaker 1: 31:04

Um, let's see . Uh, we are , we are seeing some , uh, uh, surgeons of , uh, uh, discontent, even in India among the young population. We see some even , uh, small states where there are some protests rising . Uh , the inequality there is as big as , uh, everywhere else. So maybe the complet about the political continuity has to be monitored , uh, because I think we are all in agreement that , uh, uh, next year Moody will win. O B G P will win the elections and then will be political continuity. So I think that we have to monitor carefully what is , uh, uh, is happening on the political , uh, on the political side. We have important states election , uh, coming , uh, by the end of the year. That doesn't mean that normally state election will reflect one-to-one, to the , uh, go to the , um, national elections. But in any case, it's important to, to , to measure the temperature of this discontent towards the , the government as in general as a ruling , uh, uh, uh, party. Not because it's one side or the other. Uh , and this is something that's global, but in , and , and we don't have one underestimate even in the political risk even because there is a lot of complex there. And normally when everyone thinks the same thing is better to monitor, that things don't happen in an opposite , uh, way. Um, and then really from a micro point of view, from a bottom up point of view, that the investment cycle kicks off in a , in a way that is , uh, it is sustainable. Because as I said before, growth is the most important part of the story in , uh, in , uh, in, in India in particular, in world where growth is , uh, really, really weak.

Speaker 2: 33:03

Yes. Okay. Well then thank you very much for your explanation and your insights on India. Appreciate it a lot.

Speaker 1: 33:11

You are welcome . Welcome . Uh , thank you both for your time . Thank you very much. Um, George, if you can just send me the quotes whenever you finish the article and I'll do the quote check with Alicia .

Speaker 2: 33:22

Yeah, I will do , um, uh, I have to do one more interview. I'm not sure when the data is set for that one. I'm still still trying, but as soon as the article's finished, we'll , uh, share it with you. Uh , so , uh, okay. Thanks a lot. Okay .

Speaker 1: 33:39

Thank you very much. Thank you .

Speaker 2: 33:40

Have a good day. Nice day . Bye-bye .

Speaker 1: 33:42

Thank you . Bye. Thank you .