Hello and welcome to the Global Dialogue. I'm Shireen Pan. Foreign investors have been looking at the India story for decades now. Perhaps one entity that's been a big bull on the India story is Blackstone. They have diversified interests and investments across the India story, from technology now to banking, hospitality, and even hospitals. To talk to us about the view on India and about all things global, joining me now is the man who spent the last 34 years at Blackstone, John Gray. Many thanks for joining us here on CNBC TV18, and welcome to India.
Thank you, Shireen. It is great to be here. I love coming to India.
You know, that's what I want to start with, John. You believe that we're close to a tipping point as far as India is concerned. What does that mean exactly? What are we going to be tipping into?
Well, I think India has spent the last 20 years putting in place the foundations for growth. If you think about the physical infrastructure, the airports, the flyovers, so that you can transit within cities much faster, changing the legal constructs, things like there used to be the GST taxes between the different states. If you think about the capital markets growth, the Indian stock market has now grown to the size of $5 trillion in market cap. We sold more than a billion dollars of stock in one company in August, and it just shows a scale that's very different than the India of the past. We were talking before about the number of rickshaws relative to cars and how that ratio's changed, and it just feels like the country has gotten to a place, with a lot of help from this government, where growth can continue to grow and this becomes a bigger and bigger player on the global stage. That India goes from being, you know, a smaller emerging market economy to one of the largest economies in the world, one of the largest stock markets in the world, and that investors look at India as a core part of their portfolio, not some sort of smaller fringe emerging market, but this is an essential place where you want to have some exposure. And that's true of both investors, but also companies who are saying, I want to be exposed to the Indian market as it grows. I want to have manufacturing capabilities here. So I think the perceptions of India have changed quite a bit. There still are some challenges, but we're moving closer and closer to that moment where I think India's just viewed in a different light. We at Blackstone have obviously been believers for a long time.
Yes, you have been believers for a long time. But if I were to double down on the commentary on India, you do believe that the next century will belong to India.
Yeah, we do. I mean, if you just look at the very low GDP per capita, just $3,000, a 130th of what it is in the United States. If you look at the, you know, the educated workforce, the strength in technology, the pro-growth government, the fact that this place now has all that infrastructure I talked about, that this is a place that has the potential to really grow at a rapid rate. And as a result, you know, even this year with all the negative headlines you've had, you know, obviously the war that's driven up energy prices, you've had concerns about IT services as a result of AI, and the Indian economy in the most recent quarter grew almost 8%. When you compare that to the other large economies in the world, India right now is in sort of a league of its own in terms of overall growth levels. So yeah, we believe in this place, and when you get this kind of growth, it creates investment opportunities. Now, it's different than when you're in a more developed market, when you're necessarily maybe just buying existing businesses or existing real estate. Here, you really have to be a builder. You may buy a small business to start, but you deploy more capital to build a shopping center company, or build a data center business, or build a hospital chain. We bring capital, we bring expertise, and we help these companies grow to serve the growing market here in India. And so that to us is exciting.
So let's talk about deployment. If you do believe that India is poised to grow and provide returns, in fact the best returns for your private equity business is coming in from India, and that's what Stephen Schwarzman told me in Davos when we met earlier this year. What does that then mean in terms of future investments, incremental investments in India, and across the sectors that you believe that you're not currently invested in but could potentially be big bets for the future?
Well, if you believe India is going to grow a lot, you look for where that growth is going to occur. I think it starts in digital infrastructure. Certainly AI is going to grow, so we're very focused on data centers, neoclouds, creating compute. Energy is a vital part of all this. That infrastructure is critical for AI, but also for the growth of the overall economy. We heard from the Prime Minister today about the incredible growth in renewables and solar here. So that's a very promising area. Middle class, clearly we're going to see growth there. So financial services, it could be lending to people to buy homes, it could be money management. Travel is clearly something that's got a lot of energy with a rising middle class. Healthcare, you know, particularly in second and third tier cities, bringing first-class healthcare, world-class hospitals to those places. You just see this sort of growth across the system. Credit, you know, lending to people and to businesses, also important. And then I would say manufacturing, an area that India historically hadn't been as focused on, at least export manufacturing, that's starting to change as well. We've had success particularly in the automotive space around EVs with Sona Comstar. So we continue to see India being strong. And I would also say IT services, which people have been very negative about. I think these companies, we have one in Mphasis, are going to become much more AI deployment companies. So they're going to help companies adopt AI, change their business practices, their workflows. I think Indian companies will help in a big way there also. So it's a pretty wide spectrum of businesses we can invest in. The key is to find good companies, great managers, and then lean in to help them.
You know, you brought up Indian IT services, and I think there has been a big question mark on what happens. Is this an existential moment for the Indian IT services industry given where we are in AI? Do you believe that narrative? Do you think that it is going to get increasingly harder for these companies to be able to deliver both bottom line as well as top line growth? And is this a sector that you would continue to look at? I mean, you have drawn down as far as your Mphasis investment is concerned. Is this a sector that you would continue to look at?
Well, you know, our drawdowns at times are just a function of we run closed-end funds. You know, we invest in a business, we help it grow, we return the capital to our investors. I think the market is a little too negative on the sector because it's assuming that these companies are static, that, you know, they've always made, let's call it, vanilla ice cream, they can't make chocolate ice cream. Today, these companies have very talented people. They've got systems. They've got technological expertise. They're going to be able to do things in an AI world, and companies are still going to need help with technology. So, I think the nature of what they do is going to change. Now, the market has brought the multiples down because they're concerned about what the future looks like, but if these companies are able to show the market, hey, we can continue to deliver strong revenue and earnings growth, then you could see these companies rerated back upwards. I would say I think it's important that the management teams not be static because the world's changing. So if you're a revenue management business for healthcare companies in the US, you've got to deploy the AI within your business to become better at serving your underlying customers. So to me the answer is yes, it's creating a risk factor, but it's also creating an opportunity, and those companies who can transition, I think, can thrive.
You know, since we are talking about AI, the other narrative at this point in time that's played out, especially as far as the stock markets are concerned, that India doesn't really have an AI story to tell, we don't have a software story to tell, and we don't have a hardware story to tell as yet. Now, as someone who's investing in India, how do you react and respond to that? And where do you believe India plays in the AI story today?
Well, usage of AI in India is actually quite high. And so I think there's a lot of desire and willingness to use the technology, and this game is going to run for a long time. It's not like it's over at this point. We're seeing real interest in data center capacity. Our company AirTrunk here has set out to hopefully build some sizable data centers. We've done a little already. We invested in a neocloud that we think can help solve some of the compute shortages. So I think India, with a focus now on digital infrastructure, some of the biggest companies here are doing it as well. I think this will start to get some momentum. In terms of the technology itself, there are a lot of creative, innovative companies here. I do think on the deployment side, as I said a bit ago, I think AI deployment will be led in many ways by the IT companies here in India. And then as it relates to the technology and the model companies, we'll just have to see. I mean, today it's pretty concentrated in the US and China, but could there be other companies that emerge? I think that potential exists, and I think the pace of innovation overall is going to accelerate because of AI. It's hard to anticipate what that future looks like, but there's a real strong technological backbone, there's a lot of talented people here, so I would not bet against India in this area.
You know, two questions linked to what we're seeing happen in the markets, and there are two parallel stories playing out, but very, very differently. The IPO market, India perhaps has been the outperformer of the year when we talk about IPOs, and we've got some pretty big ones lined up, you know, right around the corner. And the other is the equity markets, where we've seen FPIs pull money out of India at record numbers. What do you make of both those stories?
Well, I'd start with the IPO market. I would say I'm not sure Indians recognize how powerful and valuable their capital markets are. I mean, it's become an incredible asset to this country. We've done 14 IPOs over time. Five of the six public REITs, the real estate companies, have been sponsored by us. There's a lot of liquidity in this market, and that is a very good sign for long-term growth in the market and capital formation. Near-term, you know, markets can be fickle, public markets, right? You're loved, you trade at really high multiples. This is where India was two years ago. Everything's great. Then a new narrative comes along. The prices are too high. There's concern over energy. There's concern over IT disruption from AI. Multiples come down. But what we tend to look at as long-term investors is the underlying growth of the economy. And here you have a place, again, that's growing 7-plus percent, which is pretty remarkable. And when you look at earnings, I think in the third quarter they're projected to be mid-teens, which again is very strong. So multiples have reset a little bit, okay, earnings growth will continue, and what's healthy is the local market has stayed strong and invested. And I think foreign investors, again, as they look for growth around the world, will rediscover India. I remember after the financial crisis, most investors were like, I'm done with India, right? I'm not coming back. This was a terrible experience. We stuck through that. Now, today is nothing like that in terms of severity, issues in the financial system. But to me, it's just a reminder that you want to take this long-term approach. If you believe in a place, as we do in India, you think you can build great companies, then you deploy capital at scale. And the reality is, at a moment like this, when the market pulls back, maybe you can buy better businesses, you can buy better real estate at more reasonable prices, and your reward in the end will be even greater. Now, you need a little bit of intestinal fortitude to do that. But we continue to believe here, and there seems to us to be a lot of opportunity in this place.
So do you have the intestinal fortitude? Do you have the appetite to go all in on India at this point in time?
Definitely. We've said we've got about $50 billion of real estate and companies here. Our goal over the next five years is to double that to $100 billion. I think there are a lot of different avenues to do it. The real estate business here for us has been terrific in places like logistics and hotels, shopping centers, lots of great companies we're looking at. I would say yes. And as long as the economy continues to grow, and as long as the government continues to support this growth with policies that give foreign investors certainty and clarity and so forth, I think the opportunity set grows. So that for us will be the focus. We'll take a long-term approach, and the fact that right now people are a little more cautious, I don't think it changes the long-term picture here, which I think is quite bright.
You know, digital, of course, you spoke about AI, IT services, that's been a big bet for you. But outside of that, a recent investment that you've done in Centrum Bank, you know, a little over 9% stake that you've picked up there in the financial services space. Banks and what else looks good to you?
