Foreign investors have returned to Indian equities in recent days, partly due to a correction in technology stocks in the United States (US) and the AI trade. Do you think this trend will sustain?
When you first saw the rotation out of India, valuations in the country were also high. Capital moved to Taiwan, South Korea and other countries that are part of the AI ecosystem. Markets benefiting from the AI investment cycle attracted money.
The recent return of capital is being described as the anti-AI trade. I do not particularly like that characterisation. While it may benefit India in the short term through foreign portfolio and direct investment, I do not want India to be seen as part of an anti-AI wave. I want India to be part of the AI ecosystem.
Ignoring AI can be at your own peril. It will transform economies, companies, the way we work and the way we consume. The questions increasingly being asked of companies and countries are whether they are AI-native and whether they are positioned to emerge as winners in the AI era. At present, the US and China are ahead of other countries. This is particularly important for India because of its large services sector, which has benefited from the technology and software revolution but could be disrupted by AI.
Foreign direct investment (FDI) and foreign institutional investment (FII) are both important and welcome. India needs to become an AI-native nation and an endgame winner in the AI ecosystem.
How is the pipeline of initial public offerings (IPOs) of multinationals looking to list in India?
It is robust. Some large companies are evaluating the possibility of an IPO for their India businesses. Others, which already have an India business, are considering whether they could move some of their emerging-market businesses into the India-listed entity and then start exporting from here as well. For example, after listing, Hyundai said it would invest more in India and make the country a larger export hub.
Which sectors are these companies in?
Consumer, pharmaceuticals and manufacturing — areas where multinationals have a strong presence in the country.
Given global uncertainties and geopolitical tensions, how is the merger and acquisition (M&A) market holding up?
The M&A market is among the best we have seen in recent years. The pipeline remains equally robust. One reason for this is that equity valuations, despite recent corrections, remain healthy. Management teams and boards are under pressure to demonstrate growth and justify their valuations. If companies fail to deliver earnings momentum, investors can punish their stocks. As a result, boards are increasingly looking at acquisitions when organic opportunities are insufficient. Companies are also able to use their stock as acquisition currency because valuations remain reasonable.
There is considerable liquidity in the global financial system. However, the US is attracting a disproportionate share of that capital, resulting in liquidity being drawn away from other markets. This is something to bear in mind. But the money is available, and deals are financeable.
The other point I would make on M&A is that private equity (PE) firms have around $2.5 trillion waiting to be deployed. Their activity has been relatively muted over the past two years, partly because funds that invested during the 2021 vintage have not been able to exit all their investments at valuations they find attractive. However, PE firms are ultimately required to deploy capital, and they are likely to become more active.
That said, activity may not be as prolific as before because the cost of capital has risen. With borrowing costs at around 5 per cent or higher across major currencies, the best-quality companies will continue to access financing, while marginal businesses may find it more difficult.
How do you see cross-border M&A involving Indian companies, particularly amid geopolitical uncertainties and the conflict in West Asia?
Cross-border M&A involving Indian companies remains strong, with industrials, healthcare and technology likely to remain active sectors. There are also opportunities for Indian companies to acquire businesses in Europe, where valuations have been under pressure, including in the United Kingdom (UK). Some excellent companies are trading at relatively attractive valuations, presenting an opportunity for Indian businesses to acquire established global brands and capabilities.
How could the changing political landscape in the US following the midterm elections affect trade negotiations, including India’s trade agreement with the US?
On M&A, the political developments could accelerate transactions. There was a broad perception that the Trump administration was more conducive to deal-making. Companies may now look to accelerate transactions during the current administration to improve their chances of securing antitrust clearances and regulatory approvals.
How do you see the India-UK free trade agreement, and what opportunities does it bring for Citi?
On trade, the India-UK and India-European Union corridors offer significant opportunities. For a bank like Citi, these developments are important because of our presence in more than 100 countries. As new trade corridors open up, Indian companies will need a range of services, from opening and funding bank accounts to cash management, liquidity management, foreign exchange, swaps, derivatives and working capital management.
The world is becoming increasingly multipolar. Trade and investment are no longer concentrated along a single corridor. This creates opportunities for banks with a global footprint and the ability to connect businesses across markets.
There are growing concerns about the sustainability of the AI investment boom, particularly the enormous capital expenditure on data centres, energy and computing infrastructure. How do you see this?
AI has the potential to fundamentally change the competitive landscape. Countries need to invest in the infrastructure underpinning the ecosystem, including data centres, energy and computing architecture. The US is at the forefront, and China is also investing heavily. Elsewhere, relatively few countries have made comparable investments.
There are bottlenecks around cooling, energy availability, power grids and permitting. Securing gas turbines for power generation, for instance, has become difficult, with supply pipelines extending to 2029-30. Local resistance to data-centre development can also create challenges. However, the demand for computing capacity remains substantial. Every sector will eventually have specialised AI companies that emerge as leaders, just as happened with software.
India has seen strong IPO activity over the past couple of years. Do you expect another record year? How strong is the pipeline?
India generates around $50 billion in capital-market activity annually, and this year is no different. Large IPOs such as those of Jio Platforms and the National Stock Exchange have been completed, and both have performed well after listing.
I do not see the pipeline slowing. Next year could see a similar level of overall capital formation through IPOs, secondary offerings and block deals. There are around seven to eight large IPOs, each potentially worth $1 billion or more, for which mandates have been given. Another five to six could receive mandates.
Several of these transactions could take place in 2027, while some may spill over into 2028. The pipeline remains strong, and there is sufficient investor demand for IPOs and secondary share sales, provided the pricing is right and the companies are of good quality.
Citi has exited retail banking and wealth management in India. Which areas will drive the bank’s growth over the next three to five years?
Citi has five principal business lines. The first is banking, which includes our corporate, commercial and investment banking businesses. These serve clients globally, including sovereigns, supranational institutions, corporations and multinational companies.
The second is markets, covering sales and trading across equities, fixed income, commodities and currencies. The third is wealth management, which serves high-net-worth individuals and includes our US retail banking business.
The fourth is services, which is one of our strongest businesses globally. It covers payments, custody, clearing and related services. The fifth is our cards business, which operates in select markets and is particularly strong in the US.
Do you see India’s contribution to Citi’s global investment banking business increasing further?
Absolutely. We have been involved in several significant transactions in India, including the Jio Platforms IPO, the NSE listing and the Tata Capital IPO. We have also worked on the Vedanta demerger, the largest demerger in India’s history, and handled several of the company’s capital-raising and capital-management transactions. We also advised Diageo on the sale of Royal Challengers Bengaluru.
Our deal volumes and fee income are increasing every year. We are also increasingly involved in larger and more complex transactions, particularly cross-border deals where our global capabilities add significant value.
We have a strong market position, and I expect our business in India to continue growing over the next five years. We have around a 13 per cent market share in transactions taking place in India and have strengthened our team with senior hires. We have one of the strongest investment banking teams.
