Prem Watsa, chairman of Fairfax Financial Holdings, spoke to R Sriram in an exclusive interview on subjects as diverse as the global trade spat, the oil spike, disruptions engendered by technology and his India investments roadmap. Edited excerpts:When you look at the world today, the trade war and risks of a market collapse, there are concerns of a 2008 encore playing out. Are you worried?There is no risk that world trade may collapse, but there is a risk that interest rates may go up, particularly in the US. But there are some smart people in the US administration who understand the consequences of a trade war. They will try to get a good deal for America and it will happen. But it is true that we are all worried about interest rates because they have gone up by 1.5% to 2% recently. I lived in a time when the interest rate in the US was more than 15% and in Canada it was nearly 18%. Now it’s really bottomed out and will probably go up from here onward. But the US economy is really doing well.Look at the sentiment, whether it’s a small business or a big business — there is huge optimism in America because of the reduced corporate tax rate that is 21% now. Americans have not seen such a low corporate tax rate since World War II. In the first quarter, capex for S&P 500 companies went up by almost 25%. There are some rollbacks in regulations and as a result there was a release of the massive pent-up demand for housing, automobiles, and infrastructure in America. And you know when a country like the US does well, Canada does well, Europe does well and every other county does well.I am optimistic about global growth, but am aware of the current risks you mentioned. But keep in mind what happened in 2008-09 is an event that comes once in 40-50 years. Stock markets are trading high now, so you need to be careful, but American banks are strong now and everyone recognises it.There is a lot of nervousness in the emerging markets because of the trade war, surge in oil prices and declining currencies. How much of these factors are really going to affect EMs?No one can predict when the market could rub off 20-30% of its value. But if you are in the market, take a long-term view and look at those companies that can withstand these factors.You made big bets on the Indian infrastructure space. What are your thoughts on expanding this business in India?We have made a very big investment in Bengaluru airport — about 54%. This is one of the finest airports in India and we want to make it one of the finest in the world. Bengaluru is a beautiful city and there is a huge scope for expansion. Because of these skills, we would be able to expand our business across India when new airports come up. We would be very much interested in investing in other airports as well. While we have a 54% stake in the Bengaluru airport, we don’t own it. It is owned by the people of Karnataka and India. This is not a company, it’s an institution.What about other interests in India, like roads, power etc?We are looking at it. Wherever we go, we would like to partner with good management. We don’t bring the management, but we have to like the management. Because once we like them, we back them fully. India is poised to grow at more than 7% annually, which is the highest in the world today and it’s still not at its full potential. Potential could be well beyond 8%. If China can do it, there is no reason why India cannot do it.Is your India story largely in infrastructure?No, we have NCML which is India’s largest grain storage company. NCML is an agricultural commodities warehouse and collateral management services provider. This business we would like to expand all over India. We are also a big investor in IIFL. So we have invested across other assets as well. The commonality in all of these is good management.You made a big net on the Indian financial services by acquiring a stake in Catholic Syrian Bank. What are your thoughts on growing the banking business in India?The banking business is like any other business — if you provide outstanding service, it grows. Look at every outstanding service provider in India and see their returns. There is a huge scope in India for expansion as also with Catholic Syrian bank in Kerala. Once we get RBI approval, the bank will be in great shape to expand. We invested $5 billion in India, of which $3 billion is our money and the rest raised from our investors. We will bring a lot more money over the time as the opportunity opens up. We have no limits — other than doing well for our investors. We also always believe in putting money back into the community.What can India do to restore the health of public sector banks? Would you be interested in putting money in them?In my opinion, first, the government should get NPAs out of the books, finance them and widen their shareholding. These banks should be run in an efficient manner. As far as investing in public sector banks, we keep that option open. If our CEO at Catholic Syrian Bank comes up with some ideas, we will definitely look into it. For us, governance is very important.What should the government do to widen the shareholding of public sector banks?In Singapore what they did was, they took out some of the infrastructure projects from the budget and put them out for public funding. That’s what they should do here in India as well. Shareholding is not important, but the board should be independent. For every decision, you should not have to run and check with the government. The board should be independent and take decisions on its own. There are some banks that are run efficiently. We need to have more such examples.Why would any Indian bank interest you?Normally any bank would grow 2-3 times more than your nominal GDP. That means in India, a bank can grow 20-25% without losing any market share. You have Aadhaar cards with biometrics based on which you can sell products and services via the internet.If you were offered investments in a public sector bank without any control, that would not interest you, right?No, I would not be interested in that kind of investment. I would rather prefer a bank with good corporate governance and good policies. Any underhand businesses would not be tolerated. We are fine with the Catholic Syrian Bank investment, which we would expand organically.Have you discussed with the government the idea that you would be willing to give some capital to the public sector bank, if you were given more control?No, I haven’t discussed it specifically, but they know that. They have to formulate appropriate policies. If they do that, the capital will come to all the public sector banks.Is there any figure in your mind that you have committed to India?No, it is unlimited, just opportunity driven. I have found in my life, if you have opportunity, money comes. Fairfax now has a market cap of $17 billion from $10 million around 33 years ago when we began. Every time there is an opportunity I went to my shareholders and they have backed me.The year 2014 started with big hope and later it diminished for some people. What are your thoughts on this?What Mr Modi has done in the last four years is phenomenal. First, he eliminated corruption. Demonetisation had a huge impact on black money. India is a big country and a huge economy. Some major policies of this government will take time to yield results. Business friendly policies will have money coming back to India and this will just gather momentum as time goes on. I think Mr Modi has done a fantastic job.We have seen some populist surge in many countries whether be they Brexit or in the US or Italy. Is that good or bad?It happens in any democracy. For instance, people in America want free trade, but if it is not reciprocal then some parts of business will be impacted. Thousands of factories closed because some other countries started selling the products lower than cost price. There should be fair trade all over. If cars coming to America have no tariffs imposed on them, while cars going out of America have a 25% tariff imposed, that is not fair trade.What is your view on US President Donald Trump? The trade dispute he started, do you think it will settle down?His economic policies are very strong. At the end of the day, there will be a deal as no country wants a trade dispute. China has cut a massive trade surplus with America. They have every reason to settle the dispute with America.Do you think the Western world mismanaged the trade problem before Trump came to power?What earlier administrations probably thought was that these are countries which are developing and that we (America) should support them. At that time, it didn’t strike them that America is losing and that thousands of factories back home are shutting down. They thought America is a rich country and a percent or two doesn’t matter to them — until they realised recently that they are losing out.Are you worried about the 2019 elections where some say Mr Modi may not come back to power?Yes, some say that Mr Modi may get a minority government after the next elections. But my view is that he has done such a fantastic job and this country needs a man like Modi who is self-sacrificing, sleeps 4-5 hours a day, while the rest of the time he is focusing on economic development. I hope the people of India give him a majority government in 2019 and one more term later, so in these 15 years India can transform. The country is fortunate to have Modi as its Prime Minister. Look at his track record — with humble beginnings, he worked as a chief minister for 13 years with a 10% growth in his state (Gujarat) and that’s a huge accomplishment. All citizens there have water, electricity and primary education and now he is running a country with a 1.2 billion population. Now Modi is providing the country economic freedom. I think we need Modi for another 5 to 10 years and I am sure India will not go back to those old socialistic days.
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