Emerging markets guru Mark Mobius is upbeat on Indian equities and believes they are the best bet in the emerging market
pack at the moment, despite the nervousness ahead of the general elections.
Mobius, 81, Founding Partner of Mobius Capital Partners, says he is bullish on technology and consumer-linked stocks in India. In a telephonic interview with Ami Shah of ETMarkets.com from Munich, Mobius said he believes the BJP will most likely return to power, but it will not get a sweeping majority and will need a lot of coalition partners to form government. Edited excerpts:
There has been a continuous decline in Indian equities for some time now, and they have underperformed other emerging markets year to date. How do you look at the Indian stocks? Where do they rank in your EM (emerging markets) preference list?
They rank quite high. In fact, in our view, Indian stocks are the best among emerging markets currently. There are so many opportunities. Of course, China and Brazil are also up there. It has just been three weeks that we got the permission to invest in Indian shares. We were waiting for that to happen, and now that it has happened, we have made a few investments. We will continue to invest. I believe India will probably become the largest single-country allocation that we have.
The decline in share prices doesn’t really bother us. In fact, we see it as an opportunity to come in and buy some good stocks. We are emphasizing on small and medium-sized companies. Their behaviour is not so much reflected on the index. So, we are very happy.
Ironically, the market is reflecting the uncertainty on the political front. But that is an opportunity for us. Some are thinking (Narendra) Modi may be in trouble, will the reforms continue? Our thinking is that a little challenge to Modi is not a bad thing. It is a wakeup call for him to accelerate work pretty soon. But we have to congratulate him on the work that he has already done. We must remember that a lot of the reforms have been institutionalised.
You can criticise GST (Goods & Services Tax) and all that you want, but the fact remains that now it will have a big impact. Going forward, I think he may still be there. It may happen to be a coalition, and it could be that he may not have the full reins, but that is not necessarily a bad thing.
After the recent terror attack in Kashmir, the tensions between India and Pakistan are rising? Should these tensions escalate, how bad can the impact be on markets?
If this gets really hot, it won’t be really good. However, I would think Pakistan will suffer more than India as the latter is a much bigger market. Of course, though, it won’t be good for either side.
What do you think the election results would look like? What could be the possible scenarios, and subsequent market direction?
I think BJP will have to form a coalition to come to power. It may not have the majority that it had in the past. I think the market has already discounted that, and that’s the reason we are seeing this weakness. You can see some changes take place, which will benefit the common people in India. The budget impact, the GST effect will all trickle down. Also, I think a lot of infrastructure development has been taking place which the BJP has not been promoting so much.
But, yes, I could be wrong (on election results).
Would you still be confident on India, if Modi does not return to power or returns with a weak coalition?
My assessment would be less positive. One interesting phenomenon is, let’s presume that the Congress gets much stronger results than we expect, if that happens, you may see some changes. We may see reforms from their end too.
How easy or difficult was it to invest in ESG-compliant (environmental, social and governance) companies in India compared with EM peers and why?
Actually, we don’t go in for ESG companies in the first instance. In other words, we look at companies, we scan hundreds of them, and look at their fundamentals, and then we speak to them on phone, and ask them about the ESG stance. We are identifying lesser known companies that are ESG-compliant, companies that have the potential to improve their ESG. We are looking at companies where governance can be improved, and then other aspects can follow.
How much has Mobius Capital Partners raised and how much of it is in Indian shares? Which sectors have you invested in?
We have raised around $160 million and currently out of this $20 million are invested in Indian stocks. We are in the process of deploying more money in India. We still have roughly about 25-30 per cent cash to deploy. We have invested in technology, consumer-linked companies and industrials.
Corporate earnings have been a mixed bag in India? Do you think earnings growth will be solid next financial year?
I think so. You must remember that demonetisation and then GST introduction were very difficult for a lot of businesses. These changes may be very difficult for companies to expand and operate. I think now that these changes are embedded and are part of companies’ budgets, there is a good chance that earnings will come back.
What is your outlook on crude oil prices?
My feeling is, from the trends we see, you are probably going to see flat oil prices for now.
What are your thoughts on Indian economy currently?
I think the (economic) growth is still going to be higher than China. We will probably see around 7 per cent, and that itself is a tremendous accomplishment. I know unemployment is a real issue, and this is something that whoever comes to power in the next election, is going to have to address very forcefully. They will have to think how to make it work, and that means making it easier for foreign investors to come in. As you know, foreign investor numbers have not been very healthy. So that is one reform that really needs to be addressed by whoever is in power in the next round.
What are your thoughts on India’s latest FDI norms review for e-commerce? Did foreign institutional investors take an adverse view of this?
I think India has been much better in that regard in allowing these American software companies to come in, compared with China. You got to give India points for that. This move to disallow them to sell products of their own companies is reasonable, because they want to help small traders in India. I am sure these guys (FIIs) are very disappointed, but they will adjust to it.
What are your views on Indian financials space?
I think they are not in good shape. A lot of bailout may be required. Their loan portfolios are not as good as they are projecting. I think you have to be very, very careful. I don’t have state-run banks in my portfolio as of now.
Which sectors are you overweight in India and why?
Technology and consumer-linked companies are the ones we are overweight on.
Where do you see the rupee in the rest of the calendar year?
I think it will be a bit lower, but not really dramatic. I think the fact that the government has tapped the reserves of central bank may become a bother.
