Thoughts on the Market – "A Good ‘Perfect Storm’ for India"

Date: September 23, 2025
Host: Riddham Desai (Morgan Stanley)
Guests: Arjun Saigal (Morgan Stanley Investment Management, India Private Equity), Chaitanya Khandari (Morgan Stanley Investment Management, Macros & Thematic Research, EM Public Equity)

Overview

In this episode, Riddham Desai leads a deep-dive discussion on why India is experiencing a "perfect storm" of favorable conditions for investment. The conversation covers public and private equity opportunities, India’s differentiators versus other markets, challenges such as tariffs and currency risks, and the macroeconomic and demographic trends that underlie India's ascent as a global economic force. The episode aims to provide investors with a strategic view of where and how to engage in India’s ongoing growth story.

Key Discussion Points & Insights

1. India’s Economic Trajectory and Current Landscape

(00:39)

• India is now the world’s fourth largest economy, en route to becoming the third largest by the end of the decade.
• Key drivers: a growing young workforce, steady inflation, beneficial global shifts (e.g., supply chain diversification).
• "It's really a perfect storm in a good way. India's got a growing young workforce, steady inflation and is benefiting from some big shifts in the global landscape." — Riddham Desai [00:39]

2. Investment Opportunities in Public and Private Markets

Public Equities: Five Thematic Opportunities

Arjun Saigal [01:29]

• Financialization of Savings: Expanding access to and trust in financial products.
• Consumption: Driven by a growing, aspirational middle class.
• Localization & Supply Chain: India as a China+1 destination.
• Digitization: The 'India Stack' is revolutionizing digital services.
• Capex Revival: Especially significant in real estate, industrials, defense, and electrification.

Private Markets: Segmentation and Risk-Reward

Chaitanya Khandari [02:03]

• Venture Capital: "A bit of hit or miss", with challenges in scale and liquidity.
• Large Cap (>$100M): Attracts US buyout and sovereign funds. Crowded with new entrants (shifting from China).
• Mid Market ($50-100M): Seen as offering the best risk-reward profile—less competitive, reasonable valuations, multiple exit routes, strong growth drivers.
  • "We're obviously a bit biased given our mid market strategy, but this is where we feel you find the best risk reward." — Chaitanya Khandari [03:29]

3. India vs. Other Emerging and Developed Markets

(03:48)

• Macro Differences:

  • Better demographics, catch-up GDP potential, low fiscal and external vulnerabilities.
  • India’s story is largely domestic, not dependent on exports.
  • Robust, sectorally-diversified market compared to the concentration in other EMs.
  • "India screens as a less concentrated market when compared to many emerging and developed markets." — Chaitanya Khandari [05:10]

• Reforms: Major steps since 2017 (demonetization, GST, RERA) have formalized the economy and differentiated India’s trajectory.

4. Tariffs and Global Trade Tensions

(05:20)

• Approximately 50% of India’s exports to the US are now under 50% tariff rates.
  • Estimated impact: "This could impact 30 to 80 basis points of GDP growth." — Chaitanya Khandari [05:25]
  • Most affected sectors: labor-intensive industries such as apparel, leather, gems, and jewelry.
• Expectation: Neither India nor the US severely impacted in the short-term; little incentive for quick resolution.

5. Global Themes Resonating in India

(06:18)

• Demographics: India leads with Millennials and Gen Z shaping consumption.
• Supply Chain Diversification: India increasingly important in electronics, technology, defense.
• Industrial Revivals: Especially in electrification and renewable energy.
• Less Relevant Themes:
  • Aging population (not a driver in India, unlike East Asia or Eastern Europe).
  • AI hardware boom (India under-indexed versus Korea/Taiwan; utilities sector not strongly connected to global AI-driven growth).

6. Impact of Macroeconomic Backdrop on Private Equity

(08:12)

• India offers scale, growth, attractive return on capital, robust capital markets.
• Stable domestic investment flows (approx. $3B/month via systematic investment plans) provide PE exit opportunities and market resilience.
  • "This tends to be very stable money versus previously where we relied on foreign flows which were a lot more volatile in nature." — Arjun Saigal [08:40]

7. Public vs. Private Equity Market Intersections

(09:03)

• Limited interaction, but:
  • Pre-IPO Rounds: Public funds taking positions to guarantee allocations.
  • PIPE Investments: Selective moves into sectors with long-term growth tailwinds (e.g., financial services).
  • Take-private deals limited by complex regulations but could grow if policy changes.

8. Risks and Catalysts to Watch

(10:00)

• Currency Risk: Rupee depreciation (historically 2.5–3% per year) is costly to hedge and best ‘priced in’ by investors.
• Valuations: High and rising, especially in listed markets, spilling over into private deals.
• Tariffs: Ongoing and evolving; require close monitoring.

Additional Catalysts (Chaitanya Khandari & Arjun Saigal) [10:36, 10:45]:

• Sustaining macroeconomic equilibrium.
• Private sector capex will be crucial to drive the next growth phase.
• Employing youth productively is vital for development.
• Geopolitical positioning and careful navigation of trade tensions.
  • "All of this is important for nominal growth, which ultimately drives nominal earnings growth in India that are needed to justify the high valuations." — Chaitanya Khandari [11:10]

Notable Quotes & Memorable Moments

• On India's Macro Setup:
  "It's really a perfect storm in a good way." — Riddham Desai [00:39]

• On the Shift in Private Equity:
  "We're obviously a bit biased given our mid market strategy, but this is where we feel you find the best risk reward." — Chaitanya Khandari [03:29]

• On Tariffs:
  "This could impact 30 to 80 basis points of GDP growth... but India and US are natural partners and hence this could drag on and have second order impact." — Chaitanya Khandari [05:25]

• On Structural Demographics:
  "India is a large young urbanizing population with a large share in these demographic cohorts." — Chaitanya Khandari [06:31]

Timestamps for Key Segments

• 00:39 — India's economic trajectory and perfect storm conditions
• 01:29 — Five public equity investment themes
• 02:03 — Private equity segments and risk-reward
• 03:48 — Comparison with other EM and DM markets
• 05:20 — Impact of tariffs on India's GDP and sectors
• 06:18 — Global investment themes resonating in India
• 08:12 — Macroeconomic backdrop and stable capital flows for PE
• 09:03 — Intersections between public and private equity
• 10:00 — Risks, valuations, catalysts to watch for investors

Conclusion

This episode posits India as a rare confluence of structural and cyclical forces ripe for both public and private investment, albeit with familiar caveats on valuations and currency risk. India’s scale, demographic trends, and ongoing reforms make it stand out among emerging and developed markets, though challenges like tariffs and regulatory complexity remain. The message: keep an eye on India’s macro equilibrium, private sector investment, and evolving global positioning for the next wave of growth.