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We see a lot of value in mid- & small-caps: Mark Mobius

The rupee could easily hit 60 against the US dollar. It is quite possible, says Mobius.

, ET Bureau|
Updated: Aug 14, 2017, 08.26 AM IST
  Considering the problems they had, the Modi government has done a terrific job in introducing reforms as fast as possible.
Considering the problems they had, the Modi government has done a terrific job in introducing reforms as fast as possible.
Mark Mobius, executive chairman of Templeton Emerging Markets Group at Franklin Templeton Investments, believes the rally in Indian markets is set to continue, thanks to the high economic growth in the country and reforms being implemented by the government.

“We are pretty much on a bull run and these bull markets can last quite some time,“ said Mobius in an interview to Sanam Mirchandani.

Mobius expects the rupee to strengthen to 60 to a dollar by the end of the year.

Edited Excerpts:

Barring the last few days, Indian markets have seen a near vertical move. Would you be a buyer at these levels?

We are very positive on India. I am very happy with the reforms that Prime Minister Modi is implementing in the country and also the high economic growth. What we are doing is focusing on small and medium cap (companies) because they tend to be a little cheaper than the large caps. The average priceto-earnings ratio in India is much higher than that in other emerging markets generally, but averages of course don't tell you the full story. At the end of the day, we have to look at individual stocks.

What are your thoughts on Indian small-cap space where valuations are considered steep at current levels?

We have quite a few of the small and medium cap stocks in our small-cap fund. Some of these of course we would take profits on but generally speaking we have not moved our positions in India. We see a lot of value there and you have to be aware of the growth rate of these kinds of stocks. We like what we see in smalland mediumcaps in India.

Do you think the rally in Indian markets has peaked out?

No, I don't think so. We are pretty much on a bull run and these bull markets can last quite some time.Of course, there will be corrections on the way. But at the end of the day, we have to be aware of the fact that we are in a very positive economic situation in India.

Some market participants have likened the ongoing euphoria in the market to the 2007 bull market. What are your thoughts?

Each bull market is different from the other but one thing we do know is that bull markets last longer than bear markets. Bull markets go up in percentage terms more than bear markets go down. Knowing that, we realise that this can go on for quite some time.

You have mentioned in your blog about how India needs to make investing in the country easier and there are significant bureaucratic hurdles. How successful has the Modi government been on this front so far?

They have been very good. Considering the problems they had, the Modi government has done a terrific job in introducing reforms as fast as possible.Trying to introduce reforms is not something that is easy. Look at Trump, he has been trying to make changes in Washington and he is facing opposition from his own party. So it is not surprising these things take longer than you would expect.

Earnings growth is still missing in India. Do you see earnings recovering any time soon?

Yes, considering the high economic growth rate in India, we will eventually see it coming through. We have seen that in the US, for example. The US is now beginning to announce better corporate earnings and that maybe a precursor for even better economic growth going forward. That's the case in India as well.

The RBI has stuck to its neutral stance in its latest policy meet and talked of higher real interest rates. Do you think the rupee can strengthen from the current levels?

Yes it can strengthen from the current levels. The RBI has been somewhat behind the curve. This is very similar to what you find in central banks around the world. The Fed has been behind the curve, didn't anticipate the big crisis that we had in the US and now they seem to be too slow in moving in the other direction. We are in a situation now in India where there is an opportunity for the rupee to get stronger.

Where do you see the rupee by the end of this year?

The rupee could easily hit 60 against the US dollar. It is quite possible.

Is the recent wave of loan waivers across states in India a concern?

No, the main concern that we have at the state level is that some states are introducing new taxes. Maybe that's a reaction to the countrywide sales tax introduced by Modi and some states are maybe trying to make up for any possible losses by introducing new ones.

Earlier this year, you had said that one should invest more in emerging markets, particularly Asia. Which are the top investment destinations for you within Asia?

In Asia, China is right up there at the top and then India and Thailand follow.Then there is Korea and Taiwan. Among the smaller markets, Vietnam would be most interesting.

Emerging markets are eyeing the September meeting of the Fed for cues on how they will carry out their balance sheet unwinding. As an investor with billions of dollars at stake in EMs, how do you see this unfolding?

Central banks in US, Europe and Japan have been expanding their balance sheets dramatically. But then if you look at the loan-to-deposit ratios of banks, it is going down. The banks are not really utilising these funds to lend to businesses to the degree that they should be. With the reduction in the balance sheet of the central banks, we may see actually an expansion of lending from regular banks because they are going to have the wherewithal and the desire to increase their lending. We may see a completely different reaction to what everyone expects.

You recently said that US investors betting on economic boom under President Trump are bailing. What does it mean for EMs?

One thing that US investors have realised is that they are very underweight in emerging markets. Since the beginning of last year, emerging markets have outperformed the US market.This has caught the attention of investors and they are therefore, going to be probably increasing their weight in the emerging markets. India will benefit from that as well.

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