Why Blackstone Wants to Double Its India Bet to $100 Billion | Jonathan Gray | ET Conversations

Whenever you have a large innovation and then capital flowing towards it, there's a risk that things go out of kilter. That risk does exist.

So I think we said in five years we'd love that number to be a hundred billion dollars.

I'm saying it today. So I'll say it today.

Great to be with you, SK. Thank you.

Okay. Well, one, obviously, the wars in Russia, Ukraine, as well as the Middle East, Iran, which are causing prices, commodity prices, to go up. Agricultural prices are impacted, and that has pushed central banks, part of the reason they've had to move to raise rates as opposed to lowering. And that ties to maybe my second concern, which would be just the rising cost of capital. Interest rates around the world are going back up. You know, we've seen 10-year Treasuries in the US go up by 80 basis points in the third quarter. In Europe, we've seen a pretty significant rise, particularly in France. And this is really a combination of the war, or the wars, and the inflation caused by that, as well as concerns around government deficits. And then you add to the mix this huge AI capex build and what that is doing in terms of demand for capital, and all of that I think will likely lead to multiples coming down a bit for assets. That's the major impact.

On the positive side, I would say two things. One is we still see a lot of economic momentum in the United States, very strong revenue growth at our companies. In India, strong revenue growth. In a number of the Asian countries that are benefiting from the AI buildout, we're seeing that. And the second thing is the advent of AI diffusing into the economy and the productivity that we're beginning to see at our companies, which is pretty remarkable. Much more efficiency, opportunities to serve customers in a better way. And I think people are underestimating how much this AI can impact consumers and businesses. And I think that's going to ultimately lead to faster revenue growth, earnings growth, and it's beneficial for investing. So I'd say those are the positives, but always you've got to balance that against some of the risks.

Well, whenever you have a large innovation and then capital flowing towards it, there's a risk that things go out of kilter. That risk does exist. But I think to date this is much healthier than what you read in the newspaper on a daily basis. And I say that for a couple of reasons. First off, the demand is just continuing to grow. And I would say at our companies, their returns on investment seem pretty remarkable. They're finding new ways to use this technology. We have a garage door opening company that's using AI visualization tools to recognize when the package is coming from Amazon, then automatically opening the door. They've created a $50 million business that they think will be a $500 million business. We're finding use cases in legal and accounting and all these different areas, and our teams at times can find it difficult to get this deployed, to get the technology right, but when they do, it really is powerful. So again, I'm more optimistic.

I also think the personalization of these muse and instinct, that these technologies will help consumers. You know, we want to go on a vacation, go figure out the lowest-cost airfare and hotel room and book that for me. So I see usage going up pretty dramatically. And then on the supply side, where there's all this concern, it's actually not keeping up with the demand. So if you think about a classic sort of bubble, telecom infrastructure in the '90s, the supply was built with leverage well in advance of the demand. It turned out to be excessive, and ultimately there were a lot of losses. In this case, most of this is being built out by the biggest companies in the world who have very healthy balance sheets. And what we're seeing is that the demand is running ahead of the supply. And the supply of compute is constrained by getting entitlements, building a power plant, getting turbines, getting chips, amassing the capital. And so even though the numbers look very large, I still think that the compute is not keeping up with the demand for it.

And if you think about what could happen here, are there players in the space who could lose out? Certainly. But when you consider why do lenders lend to airlines even though so many go bankrupt? They do it because there's a fundamental shortage of commercial aircraft. I think we have a similar dynamic that is happening in AI infrastructure. We have a fundamental shortage of compute, and that is supporting the value. And as I said, most of this is now being contracted by very large companies like Microsoft, Amazon, Google, and so forth. So I think we should always keep our eyes out there, but I think the sentiment has probably turned a little too negative at this point.

I'm not, but I, you know, I think I'm probably age-wise. You know, some of my kids and their friends are using these, and I'm guessing over time I probably will be. I'm not sure I'm the first one to adopt this, but I am using a lot of AI when we're looking at, you know, investments. And today, you know, when I'm writing a memo or reading a memo, I'll often use Copilot. I'll look and say, hey, what are the risks that you see here? What question should I ask? I may have questions. Is the question in the memo? So I think, like most of us, I'm using the AI more and more, but I have not used it yet to plan my personal life.

Well, I'd start with the short term. Obviously, there's been some negativity because the wars have driven up energy costs. There's been some pressure on IT services valuations with concerns about AI disruption. And the market was trading at a very high multiple here. And so we've seen the sentiment here in India; people have gotten, I think, overly negative because when you look at the medium and longer term, you've got an economy that's growing at 7-plus percent, a very young population. You're working off a very low base of GDP per capita. You have a government that is clearly pro-growth and has been doing a lot in terms of physical infrastructure, legal, capital markets infrastructure that's helping the economy grow. And you have a lot of strength in technology with the talent here, hundreds of millions of English-speaking people. There's a lot of things that give India, I think, an edge over time. And I see it as the fastest-growing major economy for many decades to come. And as an investor with a long-term perspective, we say this is actually a pretty good moment. The biggest risk for us was that everyone would have tons of enthusiasm and you'd be paying away that future. Today, I think as the markets pulled back, that creates a better entry point for us. And again, we take a long-term view. I remember back after the financial crisis, most investors were saying, oh, India, gosh, I don't want to do that. We stuck through it. That turned out to be the right decision. This is nothing like that. But again, I think if you look at the long-term fundamentals of this economy, the rising middle class, the opportunities that will create, India's opportunity to be more of a manufacturing powerhouse globally, there are a lot of interesting places to deploy capital.

So I think these IT services companies, you mentioned Mphasis, are much more adaptable than people realize. They have a tremendous amount of technology expertise, talent, know-how, and what they'll do, and you already see this happening, Mphasis is a good example of this, is they moved from just providing services to now moving to be AI deployment companies. Because if you think about most enterprises, it's not like I could hand you Claude Code or Codex and say, change your business, make your company different. You need a partner to come in and say, this is how you're going to change your workflow. This is how you're going to do your financial reporting. And so I think India, given its strength in IT services, is a natural to help bridge this world. I also think there's a big opportunity in India in the infrastructure we were talking about earlier. So we've got AirTrunk here to do hopefully sizable things in the data center space. We invested in Nessa, which is a neo-cloud. India is a place where there's a lot of use of AI, of cloud services, and yet the infrastructure has lagged. And so that plus the energy that fuels it, I think there'll be a lot of investment opportunities. So people, I think, have looked at the glass a little bit half-empty in AI for India. I think there's a much more positive story than people recognize.

Well, it starts with the people. I mean, the leaders of our group, Amit Dixit, who runs our private equity business, Toupark, who runs our real estate business, have been with us now for several decades, and they've done an extraordinary job building great teams underneath them. I think they've also taken a bit of a different strategy than what you do in more developed market economies, which is buy existing businesses and improve them and so forth. They've really been builders of businesses. You know, they've started with things that are very small or started from scratch. In the case of some of our real estate platforms, where they decide, hey, we're going to go after logistics, I'm going to build a company from scratch, or malls, or a bunch of the services we do for the rising middle class, be it in healthcare or education or financial services. They've decided to start with something small, add capacity to it, maybe do additional acquisitions, put in place world-class management teams, ultimately take these businesses public. We've taken 14 companies public in India. Five of the six REITs, we helped create the REIT rules here, working with this government that's done such a good job. So we see ourselves as growing businesses that are meeting the needs here. Obviously, playing the rising middle class has been important. Building the infrastructure and really the real estate that makes it a reality: the office parks, the shopping centers, the hotels, and then thinking about India increasingly as a manufacturing exporter. We've made a number of important investments in that area also. So we just see this as a country with a lot of underlying growth. There's less capital relative to other markets around the world. Some people view it as challenging for us. We really see ourselves as local, given the strength of the team, the scale of our operations, and we just see this rise in India's growth as going to create a lot of investment opportunities, particularly when you compare it to other places around the world.

Well, we've talked about round numbers being easier. So I think we said in five years we'd love that number to be a hundred billion dollars. Now, we've got to find great businesses.