World View | Natixis' Trinh Nguyen | NDTV Profit
- What makes Natixis constructive on India?
- Does India have what it takes to improve exports picture?
Niraj Shah in conversation with Trinh Nguyen on 'World View'. #NDTVProfitLive
- Does India have what it takes to improve exports picture?
Niraj Shah in conversation with Trinh Nguyen on 'World View'. #NDTVProfitLive
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TVTranscript
00:00 Corporates have deleveraged with a debt ratio of 54% of GDP, which was 78% in 2012, versus
00:07 China's 165.
00:09 With its inclusion in the JPM Bond Index, bond flows will rise.
00:13 Indian households will also open their wallets and invest in the rise of the investment cycle
00:17 in the country as they rotate out of deposits and gold into pensions and mutual funds.
00:23 We are structurally bullish on India, which we think is only at the cusp of its investment
00:28 bull run that will be beyond 2024, and whoever wins the general elections.
00:33 Brackets, Modi is a shoe-in.
00:35 Now this post and her interaction that she did with the foreign media house went viral
00:40 in India, and we thought it's best to try and understand from her about how does she
00:46 see this aspect, which she's put succinctly in five lines, and expand that over a 20-minute
00:52 show with us on NDTV Profit.
00:54 So let's get her in on the show.
00:56 She's a senior economist of Emerging Asia at Natixis.
00:59 Trinh, so good having you.
01:01 Thanks so much for taking the time out and at the outset, wishing you a happy new year,
01:05 and you made a bunch of Indians very happy with your opinion.
01:08 Well, that's a lot of Indians because that's 1.4 billion and there's going to be 1.6 billion
01:13 by 2040, right?
01:14 Yeah.
01:15 So I'm very happy that a lot of people are happy.
01:18 No, but let's try and talk about this.
01:20 When you look at, I mean, because I'm sure you've looked at Emerging Asia for a while
01:24 now, the timing of this post is interesting because about the demographic dividend, about
01:30 the uptick in demographics, about, let's say, China plus one or Europe plus one, all of
01:35 these talks are there for a while.
01:37 Has something changed in the last 12 months that has led you to put out this post in the
01:42 month of December, 2023?
01:43 First, I want to clarify that I've always been constructive on India, even in the midst
01:50 of the Adani scandal in January, when everyone was down on India and itself, lamenting it,
01:57 particularly when China was on a very, really high, right?
02:00 It was gaining double digits of stocks while every day when there was negative news in
02:04 India, I've always been constructive.
02:06 And we have been constructive a long time because the structural picture is very bright.
02:10 So what I mean by this is we do know very easily the demand side of the equation, right?
02:15 The demand side is you have a lot of people and that's only going to grow.
02:21 Working age population, not only that, they're underutilized, right?
02:24 So in terms of the size of the working age population is roughly 900 something million,
02:29 but only less than half is utilized.
02:31 So there's a lot of room for growth.
02:32 A good example I would show is that, you know, China's global market share of labor market,
02:39 labor intensive manufacturer is 30 something percent, whereas India is 2.5 percent.
02:44 So we can just use the people component to that increase much as a benchmark.
02:48 Now the supply side of that is what we get really excited about.
02:51 And I think that's really what the excitement is and why India is center stage and why we
02:57 think that the structural situation is right.
03:02 One is that India is actually from a policy perspective has emphasized on what's really
03:07 needed, right?
03:08 You have people, but it's not really useful.
03:11 They can't move from place to place.
03:13 The roads, the expressways are lost.
03:15 If you don't have enough electricity, right?
03:18 The growth per capita energy growth in India has been phenomenal, higher than Indonesia,
03:24 for example.
03:25 But even with that, it's still amongst the lowest.
03:28 So that means there's a lot of room for India to grow.
03:30 But the point here is that India is investing in the right place and infrastructure, empowering
03:36 people, empowering them to do what they need via renewable energy, via building expressways
03:43 and so on and so forth.
03:45 And now the second aspect of that is that the capital market is also improving, right?
03:50 You have for the longest time a lack of investment prowess.
03:55 And so we have the public side of the investment rising, but the private side really is lacking
04:00 behind.
04:01 So the example I'll give to that is that in India, it's very difficult to fire people.
04:06 If you have a company before 400 people, you have to have the government intervening.
04:12 Now that has increased to 300.
04:14 And I think over time, this labor market inflexibility is going to have to change and it's changing
04:20 in the right direction.
04:22 Now finally, why we're positive is that India has been essentially cleaning house while
04:28 everyone has levered, right?
04:30 You know, corporate balance sheet is one example.
04:33 If you look at nifty public listed firms, the leverage ratios have actually declined.
04:39 Now that is a very good environment for you to be able to have a cleaner balance sheet
04:44 to build up.
04:45 And what we want is to be able to do that.
04:47 Corporate balance sheets are very trim, as I mentioned.
04:50 As a share of GDP, corporate debt in India is very low.
04:52 It's only about 54, 55%.
04:55 Juxtaposition to China is 165%.
04:58 But it's not the only country it shines against.
05:01 Many other countries, whether or not it's Korea and so on and so forth.
05:05 Even in Southeast Asia, we have Thailand with a lot of household debt.
05:09 So I think India looks quite bright from that perspective.
05:12 And finally, the investment perspective is not just coming from foreign investors positioning
05:19 itself to take advantage of this growth dynamic, but it's coming indigenously within India
05:26 itself, right?
05:27 India is investing via public investment.
05:30 Indians are investing by deploying more car capital to Indian companies.
05:34 And I think this is just the start because the share of that is still very, very small.
05:39 So the incremental increase will make a huge difference for India.
05:43 And we're, in my opinion, only at the beginning of the investment bull cycle that is necessary.
05:49 And why do I say that?
05:51 I say that because if you look at GDP, energy consumption per capita in India, which has
05:57 grown drastically, as I mentioned, higher than Indonesia.
06:01 Now that massive growth is still making it only half of per capita consumption of Vietnam.
06:08 So for India to grow to Vietnam's per capita of energy consumption, then you will basically
06:14 double the total energy consumption today, meaning that there is a lot, a lot, a lot
06:22 room for India to grow.
06:24 Well, I like that comment a lot, a lot, a lot, Trin.
06:29 I must tell you that.
06:30 So I've captured four pieces or four legs, if you will, out of your opening answer, and
06:37 which kind of summarizes some of the stuff that you wrote on the post as well.
06:41 I'm going to pick on them one by one.
06:43 I heard you say that policymaking in India is correct because India is investing in the
06:48 right places.
06:50 Would you elaborate a bit on that?
06:51 And are there global comparisons of countries which would have been at some point of time
06:56 at the stage that India is, did the same thing and then the outcomes resulted in what you
07:02 might be seeing favorably into some of those countries?
07:06 I would say India has built a lot of roads, but what it has focused on recently, right,
07:11 because we know about infrastructure in India, and that's led to a, generally a banking crisis
07:17 a few years back, but currently it's different in that the quality of infrastructure matters,
07:22 right?
07:23 So we want to build expressways that connect and about to reduce road bottlenecks to allow
07:29 trade and industry to flourish.
07:31 So I think that's the key difference here, is that not just about building the quality
07:36 of infrastructure, building a lot of roads that don't go anywhere, but the quality of
07:39 roads are not so good, it's not what we want.
07:42 And I think that's the key here.
07:43 India is building and it's building a higher quality infrastructure and it's learned from
07:48 the past.
07:49 So in the past, infrastructure financing is primarily via banks and now it's trying to
07:53 broaden that financing beyond just banks to other actors.
07:58 And so you can see a lot of work is being done to basically create a more diversified
08:05 investor base so that risks are not concentrated.
08:07 And also in terms of the focus on investment is also so much better.
08:14 Now why do I think that it's in the right place?
08:17 It is in the right place because India has the demand on infrastructure, demand on supply,
08:24 unprecedented anywhere else, right?
08:26 We have a lot of people and then more people are coming.
08:29 So the trends, whether or not we're looking at urbanization, urbanization is going to
08:33 put a lot of pressure.
08:34 Population growth is going to put a lot of pressure.
08:37 Industrialization puts a lot of pressure.
08:39 If you want to industrialize, as you know, India wants to grow on the manufacturing side
08:44 because that's an important equation to absorbing all this excess labor, creating jobs and creating
08:51 wealth, right?
08:52 And in order to do that, you need infrastructure, infrastructure on not just roads and expressways,
08:58 but you need the power sector.
08:59 And I think the power sector is where the current government is quite put a strong emphasis
09:05 on what we learn from the energy crisis is that India did relatively well, right?
09:10 Just for instance, Pakistan put all the eggs into the LNG basket.
09:15 India energy source is quite diverse.
09:18 They increased a lot of investment into renewables in addition to the traditional ones.
09:24 And so that diversify, so increasing the source of energy and broadening the source of energy
09:29 is quite important for a country in India because we absolutely need it, not just for
09:35 the end use, but also for the goal of India in the future, which is this industrialization.
09:42 And manufacturing requires not just the input of labor, but also the inputs such as infrastructure,
09:50 including energy, right?
09:51 When you don't have that, your entire economy is frozen.
09:55 And that's essentially what happened in countries that had an energy crisis during the energy
10:00 crisis that occurred in 2022.
10:03 So this is one of the reasons where we think that it is in the right place.
10:06 The second is you can look at the government balance sheets, right?
10:10 One of the things that they have managed to do, which I think is quite impressive, is
10:14 that they reduced the corporate tax rate.
10:18 Manufacturing taxes went down, but because of the increase of GSE, etc., the tax revenue
10:24 ratio has increased.
10:25 We still need India tax revenues to increase further, but the fact that it's streamlined
10:31 it is still quite important for India to move forward to have more fiscal space.
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