Henry McVey, CIO of KKR’s Balance Sheet on the India investment opportunity, AI pivot & more…

It's great to be here with you.

Look, India, I've been coming here since the early 2000s. This is at its core a consumption upgrade market. The move towards financial services, healthcare services, kind of experiences over things. We remain very bullish on India. When you look at our business today, we're the leading player across private equity. We built out a huge infrastructure business and we're increasingly doing more in climate as well as in private credit. It's a great story if you think about what's working in the world, consumption upgrade stories as well as services economies. India has both of those.

So I'd give India and the whole administration, President Modi, a lot of credit. They remained calm. I never thought that the tariffs would stay at 50%. That was above China's rate. I mean ultimately India and the US are the biggest democracies in the world. They need to partner together. And I think when you think about the deal going forward, I think tariffs are going to go down to about 18%. And if you look at what India is going to buy, they're buying things such as airplanes. They need airplanes. I think there's a huge demand for that. I think they need oil. There's obviously that's great for their if they can buy low-cost oil. This country is able to process some of the tougher crude and refine it and so that's a huge competitive advantage. So I think it's actually a great template for India and I think it's been a big success. India did not lose market share in its exports. I think Modi told others, told many of the different industries go find other places to grow and they did that and now with the US coming back they should be in extraordinarily good position. So I like the outcome. I think that the US and India partnering together is the right path forward as again these are two big services economies. They're two big consumption economies and I think it's and probably will end up being a win-win for India.

Yeah. So this is a great question. I think there are a couple things to keep in mind. India's stock market last year, it was the weakest relative performance. I went back and checked since 1998. This has been an outstanding market for long-term investors. Indian equities compound better than any other emerging market in most developed economies that I track in my 30 plus year career. So I think you're starting to see a pickup in nominal earnings here. Credit's getting is growing faster, rates have come down and ultimately there's some good policy to go with that. So my view is that the stock market will have a better year in 2026. That said, I've been here for almost a week now. There is concern about the IT services sector and how that can function in terms of employment growth during this AI transition. So I think that's something that both the government and the private sector really need to focus on. So that's the more liquid markets. On the private market, I think that all signs point green. I think there's more foreign capital coming in here. The markets are deeper. I look at what we were doing when I started at KKR in 2011 in India. More minority investments. Today we're doing more control investments using our global toolkit. A lot of these companies, I've met with some incredible CEOs the past week. They want to take their businesses global. They're playing that consumption upgrade thesis. And I think that KKR today we have great leadership with Gaurav Trehan. And I think that we're well positioned to play across multiple asset classes. And so I think KKR will be a leader but I think the global trend when I'm talking to CIOs around the world is they want to put more foreign capital, more of their own capital into India but they want to know the rules of engagement and they want to partner with firms like ours. So I think you're going to see increased FDI. I do think some of the numbers last year were affected by the IPO market but over time I think foreign capital is going one way which is up. The offset is we need to make sure the currency depreciation remains controlled. So that's really important for Delhi to understand the importance of having a stable currency, keeping the deficits at low levels and creating a great macro backdrop from which investors can invest.

Yeah, one, thanks for reading the report. Couple thoughts I would say which is to date other countries, Korea, Taiwan and even China have benefited more in Asia from the AI trade, right? And they've really gone towards hardware versus the software. I think what India needs to do is communicate how they're going to apply that software. And if you think about AI in general, if you think about IT services, India is the leader globally in exporting their services, right? It's about $400 billion, about half of that export services. So they need to make sure that that's not only sustained, but it's growing. And I think right now there's been probably could be more communication around that front. So what I'm looking for in 2026 is for the IT services sector to communicate how they're using AI and you are seeing that. What we're seeing is a real movement towards financial institutions insourcing their IT services. So that's an important trend and that they're able to demonstrate that they're applying AI to create value. I think there's some concern as I've traveled around about job growth related to the sector and so I think showing that profitability is going to stay high and that India is going to remain dominant in that area. I think that's a really important narrative as we go forward in this country.

I think what you've seen to date is that capital's actually flowed out. It's gone more towards China with DeepSeek or the US with ChatGPT and you've seen some of, obviously Taiwan's done well and Korea, the chip makers. What I and that capital probably on the margin has not come into India. I think what people want to know is that Indian companies can embrace and deliver on the AI promise. My expectations after being here for the past week is that that is underway but I think it needs to be articulated and given clear examples of where India is creating competitive advantage. Right now there's a little bit I would say of uncertainty around that. I'm confident though that the private sector and the public sector, I know there's a big AI summit here. What is India's stance coming out of that AI summit? How do they incorporate the private sector? That would be a goal that I would be looking for in 2026.