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Mumbai: India is expected to be the second-biggest draw for global investments after the US during Donald Trump‘s second term as the president, a top Wall Street banker said.
Investors, who are sitting on more than $3 trillion to deploy, would be choosy and there would be a divergence of flows between the public and private markets, driven by the returns outlook, said Viswas Raghavan, executive vice-chairman at Citigroup Inc.
“We have spent quite some time looking at and assessing these flows… The biggest market of inward investment is the US and the second biggest market is India,” he said.
As Trump pushes for the US to become a manufacturing hub again, multinational companies are redrawing their investment plans. While policy changes could unsettle the global business order, they are expected to boost jobs in the US.
India-being a market by itself and on the right side of Trump-could be a beneficiary, said Raghavan, who grew up in Mumbai.
Energy, infrastructure and consumer will be the dominant themes for international investors here even as there is a need to shift to environmental-friendly sources and address the needs of the huge population, he said.
“The beauty of something like India is whatever you can produce, you can also consume,” Raghavan said. “Whereas if you take a United Kingdom or other country, you need to ship it around.” Rising incomes and unmet demand of the population make India the best market for goods and services, he said.
‘Question Really Around Valuations’
With the government’s thrust on manufacturing, the rise of a new wealthy class, and the economy projected to grow at a compound annual rate of 7% – highest among major markets – the investment flows are set to increase, Raghavan said. “The question really is around valuations,” he said. “In almost three to four years, we are seeing that earnings are not supporting.”
Indian stock markets have provided the best returns among emerging markets over the past two decades in US dollar terms, as earnings grew. But that seems to have hit a wall, with portfolio investors selling a record $13 billion in the past two months, as valuations at more than 22 times forward year earnings appear expensive, with faltering profit growth.
Booming wealth and banking reforms have also made Indian corporates deleverage, and they are at the forefront of the global stage, providing opportunities for Citigroup to rebuild its business, Raghavan said. His presence at the top could help accelerate it.
“Now we have companies who are absolutely best in class, who can do a phenomenal job in putting India on the world stage,” Raghavan said. “If somebody comes to me, gives me an Indian name, saying they want to do so-and-so, I don’t need to go and find out what the company does. I’ve grown up with many of these names. There’s no discovery process.”
Pushing Advisory Business
Citigroup, as part of its global restructuring to improve its profitability, sold off its retail business in Asia, including in India. It remains a corporate bank in most parts of the world.
Raghavan, who spent decades in JPMorgan, driving its European business, was hired by Citigroup chief executive Jane Frazer to rebuild its corporate banking.
One of his main agendas is to drive the fee income and regain market share in its advisory business. Citi has been a laggard among Wall Street firms in this space. Raghavan is putting building blocks to regain the lost glory.
“I have three verticals (corporate, commercial, investment banking). The drive, very much, is to get ourselves organised, and effectively bring those three businesses and thread them very, very closely together,” he said.
After the global financial crisis, all full-fledged Wall Street banks were restricted by regulation from taking disproportionate risks. While peers JPMorgan and Bank of America came back, Citi remained risk averse in funding clients in risky bets such as takeovers, especially by buyout firms. As a result, Citi’s share of leveraged loans has fallen to less than 4%, from more than 12% prior to the crisis.
Raghavan has taken the first step to reverse the trend by partnering with Apollo Management for a $25-billion credit fund that would help it stitch takeovers with funding as well. “The thing with leveraged finance is not the availability of liquidity. You can get infinite private credit funds all crying for paper. The problem is the supply side, which is why we tied up with Apollo, with Mubadala and Athene in it,” he said.
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