#NDTVProfitAtWEF | Does India benefit from cold feet towards China?
Investcorp's Rishi Kapoor says India is attractive on its own.
Watch him in conversation with Niraj Shah on the sidelines of Davos 2024.
Read all #WEF2024 updates: https://bit.ly/420ODMW
Investcorp's Rishi Kapoor says India is attractive on its own.
Watch him in conversation with Niraj Shah on the sidelines of Davos 2024.
Read all #WEF2024 updates: https://bit.ly/420ODMW
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TVTranscript
00:00 Well, thanks so much for tuning into this conversation with arguably somebody who is
00:03 amongst the largest names in the investing fraternity on the global front.
00:08 Rishi Kapoor of Investcorp with us on NDTV Profit.
00:11 Rishi, thanks so much for taking the time out and speaking to us today.
00:14 Look, Neeraj, as always, it's a pleasure being with you all over here.
00:17 Thank you.
00:18 So, Rishi, how is the world of risk assets looking like in 2024, considering the fact
00:25 that the narrative is of higher for longer rates, but in a year where we might or we
00:32 definitely will see interest rates coming off from the peaks?
00:37 So I think you framed it well, Neeraj.
00:40 It's all about the narrative because the narrative initially at least shapes sentiment and then
00:45 sentiment eventually will result in decisions being made by people like me and others that
00:51 are here and all over the world and those decisions in turn drive outcomes.
00:56 So let's take a step back.
00:59 What has changed in 2024 and in the lead up to 2024, I would say?
01:03 I think the main change that I see is not necessarily the fact that interest rates might
01:10 decline precipitously over the course of the next few months or even the subsequent year
01:16 or so.
01:17 It's actually the narrowing of the bands of uncertainty around the direction of rates.
01:23 What I mean by that is the following.
01:24 Heading into the early part of 2023, there was a lot of uncertainty around where will
01:30 rates peak, how long before we get there, how fast is going to be the pace of hiking
01:36 and will there as a consequence be the potential for a recession or certainly a hard landing
01:43 for the US economy broadly speaking but also beyond that the spillover effect on the global
01:48 economy.
01:49 I think where we stand today a year hence is that whilst it is entirely plausible that
01:56 rates might stay high for long.
01:59 I'm not using higher for longer.
02:01 I'm using high for long but the bands of uncertainty around that level of long-term rates is narrower
02:11 and that informs risk-taking and decision-making.
02:17 People like us that are in the business of deploying capital across multiple asset classes
02:21 all over the world, the one thing that we are most fearful of is uncertainty that is
02:27 difficult to underwrite.
02:30 We are in the risk-taking business so some level of uncertainty obviously is taken for
02:35 granted but beyond certain boundaries, acceptable guardrails of uncertainty, it gets difficult
02:41 to generate the kind of conviction that you need to deploy capital and I think the narrowing
02:47 of the bands of uncertainty is very constructive for risk assets but more importantly for the
02:54 ending of that funding winter that we were talking about last year if you recall.
02:59 In some sense, are you a lot more confident and more certain an investor at the beginning
03:05 of 2024 than what you might have been at the beginning of 2023?
03:10 In 2023, certainly we were tentative, no doubt about it.
03:15 As it played out, 2023 particularly in the public equity markets was a great year and
03:21 we've had some great outcomes ourselves in our portfolio.
03:25 In India, the portfolio that you are most familiar with, we had a fantastic outcome
03:29 with Safari Industries, almost a four times money on money return over there.
03:35 That's nothing to be embarrassed about at all, that's a fantastic outcome but notwithstanding
03:43 how the year actually played out towards the second half in particular, the final quarter,
03:50 our demeanor, our stance was cautious, prudent.
03:54 I'm not suggesting that we are entering 2024 abandoning all of that prudence and caution.
04:01 All I'm saying is that we are more constructive about the outlook for true fundamental growth
04:08 and value creation devoid of the extremities that are driven by monetary policy.
04:16 The direction and pace of monetary tightening is something that we are more sanguine about
04:23 now than we were 12 months back.
04:26 Somebody gave me an acronym in 2023, maybe it didn't turn out well, it didn't age well
04:31 for sure.
04:32 The person said we are moving from a zone of TINA to TARA, which is there are reasonable
04:36 alternatives.
04:37 But is it true now for 2024 that from there being no alternative to equities, there are
04:43 reasonable alternatives now for 2024 and beyond?
04:48 Depends on what your horizon is, number one, what I mean is investment horizon and number
04:53 two, which markets you are focused on.
04:56 So even for most of 2023, despite the fact that there was abundance of caution in terms
05:02 of deployment of capital into equities early on, credit was a fantastic space to be in.
05:09 I mean you were getting equity like returns in private credit.
05:13 I think as we sit here today in January of 2024, looking ahead over the next 12 to 18
05:21 years, that more constructive backdrop for private credit continues to play out.
05:27 So definitely, is there a real alternative?
05:30 Yes, credit is a real alternative.
05:33 Real estate should bounce back with the stabilization of the direction and trajectory of interest
05:41 rates because what you need is price discovery and I think what was missing in 2023 was an
05:46 unwillingness on the part of buyers and sellers to converge on a price point where they could
05:52 transact.
05:53 Now I think that price discovery is likely to happen.
05:56 And private equity as we alluded to earlier, I think now with the general outlook being
06:04 of sidelining the idea of a likely hard landing or a recession and focusing on a narrower
06:13 range of outcomes which may be a soft landing, may be a no landing, where you continue to
06:18 power ahead with 2.5-3% growth, that's actually very constructive for private equity.
06:23 Long-term value creation is pretty much the name of the game for the next 3 to 4 years.
06:30 Any view on public equities more so India simply because of the fact that it seems to
06:35 be the sinus of many eyes, but the valuations out there are maybe a hitch.
06:42 The bull would argue that valuations in India have always been expensive so this is nothing
06:47 new.
06:48 So you know I have gotten into a little bit of trouble with my colleagues and friends
06:53 for proclaiming on occasion that investing in India, particularly in equity markets in
07:01 India is not for the faint-hearted.
07:04 And the reason for that is very simple, precisely what you said, which is valuation multiples
07:09 that we get used to dealing with in the rest of the world basically end up defying gravity
07:16 when you come to India.
07:18 But you are also right in that that's always been the case.
07:23 So ultimately for us when we think about how we shape our investment strategy for the equity
07:29 market in India, we are not in public equity, but being in private equity what happens in
07:34 the public markets is very relevant for outcomes in terms of exits and monetization for us.
07:40 So the way we shape it is we say let's accept the fact that we are going to pay a premium
07:46 over average multiples globally in India for a company that is similarly in a premium segment
07:54 and has that premium level of performance.
07:57 So it is much more a micro assessment of the sector, the industry in which the company
08:02 is and its actual positioning within that industry or sector, its management team, its
08:08 vision and its go-to-market strategy including its cost structure and its efficiency levels,
08:14 not just about naked growth.
08:16 I think that tide has run out, that growth at any cost is not really a supportable business
08:25 value proposition when it comes to private investing.
08:28 It is much more about proving your unit economics and positioning yourself such that you have
08:36 a truly valuable business value proposition from the get-go that you can grow, enhance,
08:43 scale up, hopefully exponentially at higher than market rates and then monetize.
08:49 And I think from that perspective if you stay disciplined on those few areas that I outlined,
08:55 guess what, you are going to get that premium multiple on the way out as well.
08:59 And I think that is where we make ourselves somewhat agnostic to the multiple that we
09:03 are paying on the way in because we think that we can monetize it at the same multiple
09:09 on the way out.
09:10 Got it.
09:11 My final question, Rishi, and that is on the flows to India.
09:14 Now there is a lot of talk about how, I mean people tell me that ex-China funds are getting
09:20 tremendous flows because people are to an extent maybe disillusioned with some of the
09:24 things that are happening there, but that notwithstanding, it is not a market that you
09:27 shrug away.
09:28 But my limited point is still in the near term, do you think markets like India and
09:32 some others of course, benefit out of investors maybe having a little bit of a cold feet when
09:38 it comes to investing truckloads into China?
09:42 So can I be slightly controversial?
09:44 Please do.
09:45 In terms of responding to that.
09:46 I am a firm believer in the absolutist view rather than the relative view.
09:50 And what I mean by that is, you know we are a three and a half trillion dollar economy,
09:54 right?
09:55 Our market cap is actually slightly higher than 100% of GDP.
10:00 And we are at that inflection point in terms of GDP per capita where the level of affluence
10:05 ought to grow.
10:07 On an absolute basis therefore, India should get its fair share and more off the capital
10:15 flows.
10:16 It is not about reallocating, it is about an absolute level of capital flows.
10:22 Because it demands it, there is a need, and it commands it because the fundamentals are
10:27 in place, right?
10:29 You have a young demographic, you have a digitally native population, you have growing levels
10:34 of affluence, you have a growing middle class, you have two major secular trends shaping
10:40 the global economy, both of which are supportive tailwinds for India.
10:44 The energy transition and the embrace of digitalization and artificial intelligence.
10:50 India has been called, I think perhaps wrongly so, the back office of the world because everyone
10:55 wanted to call somebody else the factory of the world, right?
10:59 But what does back office actually mean?
11:01 We have the knowledge workers, but what do you think is going to be the sector that is
11:05 most beneficially impacted in terms of boosting productivity levels as a consequence of artificial
11:12 intelligence?
11:13 Knowledge.
11:14 The knowledge services sector is going to be probably the biggest beneficiary in terms
11:18 of improved productivity.
11:21 And the energy transition, we are the biggest consumer of that energy transition as a country,
11:26 right?
11:27 So I think in an absolute sense, India sits at the crossroads of a moment in time, I guess.
11:34 Maybe we'll look back at today's discussion 20 years hence and we say, "Well, that was
11:39 on the 15th of January, 2024."
11:42 But you get my drift, right?
11:43 I think there is a point in time today for India where it can afford to demand and command
11:50 absolute levels of capital allocation based on fundamental value and merit.
11:54 Well, that's not controversial.
11:56 That's music to the ears, Rishi.
11:58 And to me, as we wrap up this conversation, the takeaway is this, more importantly, but
12:03 also that things like private credit have come off edge and might actually see some
12:07 stupendous growth over the next few years.
12:09 Thank you so much for your time.
12:11 Lovely talking to you.
12:12 Pleasure, as always.
12:13 Yeah.
12:14 And viewers, thanks for tuning in.
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