Market braces for familiar governance; Globalisation still intact, says Viswas Raghavan of Citigroup

Globalisation is too entrenched for the world to pull back from, said Viswas Raghavan, Head of Banking, Citigroup. The potential tariffs and the boost to local manufacturing could be the growth drivers for the US while geopolitics remains the biggest worry for the financial markets, he said in an interview with Shilpy Sinha. Edited excerpts.

How shocked were you when the results came?

There was no shock because the market was bracing. The trifecta (white house, house, senate) wasn’t expected. The market had seen both versions of governance before. So, it’s not like there is someone new.

There’s a lot of commentary about what’s in store, especially globalization?

I’m more of the camp that globalization is not dead. We are too global already as a community.. in terms of interests, in a very digital age. You cannot ignore how interconnected and entrenched our lives have become. I don’t think you’re going to unwind that and then suddenly kind of go back to an unconnected or a disconnected kind of way of life. That entrenchment is going to be, if anything, even stronger with the pace of digitization and AI. As human beings you always flock to progress.

So, can it be business as usual?

You’ve seen the beginnings of near-shoring, friend-shoring and the biggest of adjusting factors in COVID, reliance on global supply chains. Then there was, just as that adaption was happening, you saw another mega adaption, which was the Russia-Ukraine saga. You saw Trump before, and what you are seeing here is maybe, when you look at tariffs and the like, even Europe, in the auto sector, et cetera, is looking at tariffs. This is a very socioeconomic question around different industries. Some certain sectors like steel went through a similar kind of exercise. So you are seeing an element of protectionism coming in. It’s around your population and the social welfare of your nation.

What does it mean for economies under Trump?

I think the agenda is very clear. It is around tariffs, potent immigration policy. The growth prospects are going to be very strong. It’s more money in the pocket, more of the economy coming into America. It will be, if you want to sell in America, come make it America. So, it means more factories, more jobs, more capex. All of these really point to a very strong outlook for US domestic growth.

There is a fear of return of inflation. The USD is strengthening and yields are back to where they were a year back. What do these mean for monetary policy and markets?

We put the inflation genie barely back in the bottle. Unleashing that inflation genie, what does it mean to the yield curve? Will we be back at 5%, and can the economy sustain that interest rate in a very strong kind of a growth outlook. In a way that is the breaking mechanism, because while this can be inflationary, things like AI, et cetera, will be deflationary, because of productivity improvements. There’s a bunch of inflationary stuff on this end of the ledger, and on the opposite side of the ledger, there are some deflationary forces. And then the other point is how much of all of this is rhetoric? You know, he’s very pro-business, he’s a dealmaker, and is there a balance at which the world kind of settles.

What does it mean for the flows in emerging markets?

We have spent quite some time looking at and assessing these flows. I think the biggest market of inward investment is the United States. That is the market where the maximum focus for investment dollars is into the United States, globally. The second biggest market is India. Where the markets with the least excitement right now is Europe.

But when we look at the numbers of overseas investors we are seeing record sale in both stocks and fixed income?
The question really is around valuations. And what do these valuations mean? What is the entry point, if you wanted to? There are two types of things. One, we’re talking about investment in stock markets and the like. And the other one is Capex, the manufacturing businesses shift into India. States like Orissa are doing a really good job. But on the public markets it’s valuations. The question is what is their entry point? Multiples like 22 or 23 times are not supported by earnings either.

You have spent a lot of time in JPMorgan. What is your mandate and goal in Citi?

The drive very much is to get ourselves organized, putting the client at the center of how they consume Citi. Effectively bringing three businesses (corporate, commercial and investment banking) and threading them very, very closely together to effectively service clients. So if you take a client from the C-suite – the board, the chairman, the CEO, the CFO, you have the treasurer, you have the operations, you have a global business, you have an architecture which is in multiple countries. It is not about just doing the IB and then disappearing for a period until the next transaction happens in three years. This is probably the best corporate bank in the world – from treasurer, cash management, FX, deposits, clearing, custody, that whole spectrum. The idea is to get these three entirely wrapped around the client to service the continuum. Of the banks out there, Citi probably has one of the best geographical reaches.

Citi has been a laggard losing market share and hesitant to do many businesses after the GFC. How do you fix it?

Citi post-financial crisis kind of was careful around the leveraged finance market. About nearly 20-25% of the global fee pool is financial sponsors and leveraged finance. The thing with leveraged finance is not the availability of liquidity. The market is awash with money. Right now you can have all the money you want. You can get infinite private credit funds all crying for paper, all the AUM which remains undeployed. The problem is the supply side which is why we tied up with Apollo, with Mubadala and Athene in it.

How about those funds finding their way to India?

Someone like Vedanta gets so many inbounds from sovereign wealth funds, private credit, all looking to participate in India’s best natural resources story. You do attract capital from multiple pockets. The thing with the leveraged finance market is not liquidity, it is by committing time of your own risk-weighted assets to create your own liquidity pool. Why do you need to do it when there’s all the liquidity you need? That universe of sponsors will continue to be very, very active. That group of sponsors globally have close to $3 trillion of firepower that they are waiting to deploy.

You said India is the second ranked in terms of where the dollar wants to go. But where do you see opportunities with this kind of valuations?

The public market value is stretched. But in terms of off-market investments infrastructure is a massive thing. India is still very early in the infrastructure play. Then you have the whole theme around energy and, you know, alternative energies and the whole ESG thing. Natural resources is a massive story.

The consumer story is – it is just – you literally can – everywhere you go, you know, 1.2 billion-plus people is a diaspora and a captive audience, ignore it at your peril. The beauty is India is whatever you can produce you can also consume.

What are the risks for global financial markets beyond Trump? Last year the US had a few banks going belly-up and Credit Suisse.

My first risk is geopolitics and the second risk is geopolitics. There are just so many flashpoints. And those flashpoints are you’ve seen the Middle East, you’ve seen the whole Russia thing play out. So there are a lot of things that could, and then trade is clearly another one. What friction does that lead to? To me, geopolitics.

You have a goal of raising the fee income for Citi as you rebuild. How do you plan to do that?

Globally – if you take the I-Banking, a big focus area for us is going to be financial sponsors. That’s about 20 to 25% of the wallet where Citi can really do a lot more. We’re getting ready for that. The themes are tech and healthcare. Tech is not pure tech alone anymore. Every industry has got a tech adjacency. Healthcare is a massive thing.. in genomics, and then big pharma are looking to either grow pipeline or buy pipeline.

So that will lead to a lot of cross-border and organic acquisitions and the like. It is also a naturally defensive sector which will have its own dynamics irrespective of the geopolitics stuff.