You were prophetic about market volatility in 2022. What’s in store for 2024?
A lot of the discussion and debate at the moment globally is around the fact that growth is slowing in many parts of the world, but it is quite a disparate picture depending on where you are. As we look into 2024, a lot of the question in the markets has been about when rates – will begin to come down, by how much and how quickly. When you peel beneath it, we’re finally getting to the end of that long tail of COVID. We’ve come into that period with the consumer healthy, corporate balance sheets healthy. So, we’ve got a period of likely slower global growth, nonetheless, there’s a lot of resilience.
What’s at the top of your mind?
Geopolitics dominates. It is the year of elections and that is going to have quite a big impact on the medium-term macroeconomic and other forces. Then you’ve also got transformative technologies where there are some countries which are on the front-foot in some sectors and others that may be a little bit sleepier on that front. I think we’ve got a decade of resiliency as a theme ahead that we’re going to have to invest in. Food security, energy security, green security, fiscal, financial, defence (security) and obviously supply chain and operational security. So, it’s quite a complex array of different issues the world has to tackle. All of which really play to India’s favour.
You’ve listed out a series of challenges for the world economy. Where does India fit in? Can it be seen in isolation?
Every challenge is someone’s opportunity and part of it is also the mindset that you have. We’ve got the potential of an AI revolution ahead; we’ve got a green transition ahead. All of these will end up being new growth opportunities. In India, we’ve just had breakfast with a group of mid-sized companies across pharma, the food industry, the chemical industry, the IT industry, and a range of others. They truly are makers. There’s no one saying, “woe is me, I’ve got challenges”. They’re looking at this in terms of innovation driving plans, executing them with discipline and tremendous growth opportunities that they see ahead. So, it depends on your mindset – whether you have a ‘woe-is-me’ victim mindset or whether you say this is an opportunity for me to build a really strong business model for the decades ahead.
But India is also in the midst of a disturbed world.
I’m a pessimist for certain parts of the world and I’m an optimist for others – here, the US, parts of the Middle East, parts of Japan, some parts of ASEAN and the like and China. I think there’s a pretty strong future here but it’s one where you’ve got to be innovating. You can’t be sitting at home and being complacent – this isn’t about riding some arbitrage wave.
Within India, what excites and what worries you?
At Citi we feel pretty privileged in the sense that we’ve got a comprehensive banking offering here. There is no shortage of areas that we are excited about. If I look at the technology space – nearly every industry has adjacencies. The move from more of a cost arbitrage in India to now looking at it in terms of innovation from our tech centres – it’s drivers of our business strategy. Citi is doing a huge amount of work in transformation globally. That is all happening here in India. A lot of the thought leadership is coming from here. You’re saying this in play in multiple, different sectors.
Is it also because of the shift away from China?
Some impetus is coming from the desire to have more diversification away from the concentration into China. India is obviously a beneficiary there. I think that does a disservice to India because it’s sort of saying it’s an alternative to China rather than a recognition of what India stands for in its own right. That to me is epitomized by the fact that India is an innovation centre; this is not a cost-play. That’s where competitive advantage comes from in the future. I see it live. I see it in food, I see it in green, I see it in supply chains, I see it in the tech centres and I see it in some of the areas of traditional strength for India as well. A lot of it being domestic led. The international is the icing on the cake. But the cake is the domestic economy.
So the domestic economy is what excites you?
Look at it from my point of view – I’m a global CEO, I come here on a pretty regular basis and I have done so for decades. I’ve never been more excited about what I’m seeing here, and I don’t pretend it’s easy. You see tangible, disciplined progress and it’s not by accident or by luck. I think the China plus one concept underplays what’s happening here. It needs to get rebranded. I’m hearing it from all of the client base- about how impressed they are by having very smart policy and execution that is supporting investment, that is supporting growth, that is supporting much more self-sufficiency within India. That’s pretty unique. I don’t hear that in many countries. It’s part of the equation that makes this India’s decade.
Citi plays a very large role in the FPI flows that come into India. With inclusion in the bond indexes, how much do you anticipate to flow?
I think the game-changer most recently is that it is getting easier to do business here as well. That accountability, discipline and the execution of things is strengthening here and that gives people a lot more confidence and trust. In terms of absolute numbers, our view is more on the side of $40 billion than $25 billion from bond index inclusion. I’m at the upper end of the range. There’s a lot of opportunity. The global piece – we see it as the icing because what India is doing domestically is huge. We see a pretty insatiable appetite to invest and grow in India, particularly as you see this track record of execution occurring. The scale is the other bit – there isn’t that much competition when it comes to the ability to have scale. Vietnam has done an exceptionally strong job, but it has capacity constraints. Some of the ASEAN markets are more constrained in terms of how much they can do. Whereas here, that could be less of an issue.
In terms of your own business, after exiting retail, how ambitious are you? Where on the board is India in terms of potential growth?
We’ve gone through a big refresh of our strategy and restructuring of exactly what Citi is. Citi is the preeminent banking partner for a client with cross-border needs. That could be accessing global capital markets, it could be tapping into global supply chains in many forms. We move $1400 trillion of cash management and foreign exchange in trade for about 5000-6000 multinationals and 16,000 mid-market companies globally in a year. India, within that, is an absolutely critical hub. Weare about 36% of FPI flows coming into India. We’re a very large player in foreign exchange, in trade, in electronic commerce, these different areas. So, for Citi, as the world moves from unipolar to multipolar, India is going to be a huge component of that.
Can we try and get you to commit to some kind of numbers? Where would you like for it to be in 5 years?
It’s critical for us – in the domestic market the role that India plays globally, the talent market here is also critically important. That comes to the innovation we’re seeing in our tech centres, we’re seeing it in our teams on the ground. Unquestionably it will grow. In almost any dimension, India is in the top three to five, in any way that you cut it. We have almost as many people working for us in India as we do in the US. I suspect it could well end up surpassing the US before very long. Part of that is because technology is such a driver. That’s why I say it’s multi-dimensional. When it comes to the importance of India, you can’t just put it down to one number. It is on multiple dimensions that India is in the top three-to-five for us. Top 1 and top 2 in certain ones. I’m not going to commit to a number because there’s too many of them but I will commit to this – it (India) will certainly remain top 5 on multiple dimensions and I suspect it will be top 3 in even more going forward for Citi.
Stepping back to the US for a minute – there is a twin-pronged concern around the banking system there. Firstly, the froth in the housing market and rising bond losses. Are these substantial concerns?
I think that’s overblown. Let’s put it in context – there are 4500 banks in America, it’s a very different banking market from the rest of the world. There were 10 banks out of 4500 where you saw meaningful deposit outflows. The main one obviously was Silicon Valley Bank, and that bank was insolvent at the time. I think that was a fairly rational response. It was pretty isolated in the grand scheme of the banking system. I think liquidity is strong there. The capital is strong in the banking sector and with 4500 banks, you’re expecting a few every year to fail and there is a mechanism in the FDIC in which the bank gets taken over and then the deposits – everyone wants the deposits. It’s usually the assets that have to get discounted. You’ll find a few banks in the US that will continue to have some issues in the office commercial real estate space. When their financing terms come up for renewal, that one is going to be a challenging situation. But it’s not as if there’s a huge exposure to it. I think it’s pretty manageable and the reserves are very high in the larger banks.
Do you anticipate more incidents like the Silicon Valley Bank?
Nothing out of what I call the BAU (Business As Usual) that you get every single year. We may get a few more that will pop up, we had NYCB the other day, which was much more related to, isolated to the office real estate exposure.
I don’t think that’s going to be an issue going forward. It’s much more about how do we make sure that when rates do start coming down, how do we manage that movement? Because rates went up very quickly.
You motioned geopolitics as the key theme. The last time we spoke was in the backdrop of the Ukraine war. Now, we have China, the Middle East, Europe veering to the far Right. Some historians look at it as a turning point ending the golden era of global trade and prosperity.
I think we are certainly in for an era of more protectionism. We’ve got China with more of a demand challenge right now and overcapacity. We’re watching it getting sold all over the world. When I was in Latin America I heard about it. In Europe, there’s a lot of concern over it etc. That, I think, will prompt some responses. I think we’ll see it here as well. Some of those responses could be tariffs, some of them could be bans, some of them could be making sure that there are protections for the domestic industries to flourish and not be rendered uncompetitive by it. I wouldn’t go to that and say that global trade is dead. If global trade is dead, the world economy is in a very, very bad place, because at the end of the day, trade is important for vibrant, healthy economies.