Whalesbook
Uday Kotak believes India's economic and financial sectors must fundamentally change their approach. He warns that the global order is becoming 'tribal,' urging India to shift from protectionism towards actively controlling assets, both physical and digital. This evolving landscape means simply being resilient won't be enough; proactively building and controlling resources will determine national futures.
Kotak's central theme is a global order that prioritizes 'raw power' and 'asset control,' departing from the post-1945 era. He calls for India to boost its 'creation' and 'power' capabilities. For financial institutions, this means strengthening balance sheets and acquiring strategic assets through direct or minority stakes. For example, Kotak Mahindra Bank recently received RBI approval to take stakes in AU Small Finance Bank, Federal Bank, and Jammu & Kashmir Bank, aiming to gain influence.
Indian banks are approaching this complex global environment with differing strategies for risk provisioning. In Q4 FY26, HDFC Bank, ICICI Bank, and Kotak Mahindra Bank did not add extra provisions for geopolitical risks. However, Axis Bank and Federal Bank have set aside funds, suggesting different views on potential future impacts on loan quality. This occurs even though overall asset quality remains strong, with HDFC Bank reporting a Gross Non-Performing Asset (GNPA) ratio of 1.15% and other major banks maintaining healthy levels.
Valuation context: Kotak Mahindra Bank trades at a P/E of about 19.5x with a market cap near ₹3.8 trillion. HDFC Bank has a P/E of roughly 16x and a market cap between ₹11.6 trillion and ₹12.3 trillion, while ICICI Bank trades at a P/E around 17x with a market cap near ₹8.9 trillion. These valuations show they operate in a competitive space, with strategic responses to global shifts being key. The banking sector is generally considered well-positioned, though geopolitical tensions pose a near-term challenge. Recent research shows that currency and banking sectors are particularly sensitive to geopolitical uncertainty.
Historically, Indian markets have proven resilient, bouncing back strongly after geopolitical shocks. Events like the Iraq War and the Russia-Ukraine conflict show that markets can suffer significant drops (10-18%) but often recover within months. This pattern suggests that proactively taking strategic positions, rather than just reacting, is crucial for navigating market volatility. Indian companies are expanding globally, using digital tools, a large talent pool, and cost advantages. Those with strong domestic sales, low debt, and government backing tend to fare well. Increased corporate investment is also anticipated, supported by stronger balance sheets and fewer structural hurdles.
However, the evolving 'tribal' global order also poses risks for India. A key concern is the possibility of India adopting protectionist measures, which could hinder competitive strength rather than foster assertive global asset acquisition. While Indian firms expand abroad, many still depend on domestic demand and might find it difficult to gain 'raw power' control of global assets against established giants like Microsoft or Google. Kotak Mahindra Bank's significant contingent liabilities, exceeding ₹11.75 trillion, underscore the risks embedded even in strong balance sheets. Moreover, while intangible assets are gaining importance, control over tangible resources and critical trade routes, such as the Strait of Malacca, remains a decisive element in global power dynamics. Failing to secure control over these assets could expose India to external shocks, similar to how oil price fluctuations affect corporate profits and debt. Banks face their own challenges; while major players like Kotak Mahindra Bank, HDFC, and ICICI are not booking geopolitical provisions, Axis and Federal Bank have done so, indicating potential future credit risks for the financial sector. The existing global financial framework, built on consensus, is being tested by shifting power balances and increased use of financial sanctions, creating uncertainty for emerging economies like India.
Kotak envisions a future where national destiny hinges on strong balance sheets and resource generation. This demands continuous strategic adjustments from Indian businesses and policymakers. The emphasis must shift from merely participating in the global economy to actively shaping it through strategic asset control, innovation, and a robust capacity for 'creation and destruction.' Financial institutions will need advanced systems to identify hidden geopolitical risks and test for extreme scenarios, aligning with evolving risk management practices. The ultimate aim is to create a powerful economic engine that not only endures global fragmentation but also uses it for strategic gain.