 "Mark Mobius")
Emerging market guru Mark Mobius, who recently retired from Franklin Templeton, talks about the liquidity crunch that has hit India following the IL&FS default. In his keynote address at Morningstar Investment Conference, he says India needs to move quick on cutting down bureaucratic hurdles so that new investments can come in and improve the liquidity situation. Among other things, he delves deeper on his own investment philosophy and what makes him think that environment, social and governance – ESG – is the next big investment theme. Excerpts…
India is among the worst-performing markets this year. How does it compare to other emerging markets (EMs)?
Many markets have been worse off. The Chinese market has fallen more. There is a possibility of India falling further as ramifications of the liquidity crisis could take a further toll. Also, there is general tightening of liquidity everywhere. A lot depends on how the government responds. There are a number of aspects to this.
One is that the Reserve Bank of India should not raise interest rates. When you have such crisis, you don’t want to make it worse.
The government needs to move quickly to loosen restrictions on bringing in capital to the country. For example, we have been waiting for six months to get approval; we are just a portfolio investor. I can imagine — if you are doing any direct investing, things could be worse.
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Do Indian markets look attractive after the correction?
Indian markets are attractive. We want to invest right now if we get approval. Maybe six months later, we may not want to, if markets recover.
Which sectors could do well in India?
I look for those that are most unpopular, where there is trouble. Financial institutions are the obvious ones, at present. You got to look at financials, where prices are excessively down. Then, see if you find those that could improve their balance sheet and increase profitability. Companies that manage to survive will take market share.
From a long-term perspective, we are very interested in consumer and consumer discretionary. Consumer in India is getting richer. The per capita income is improving.
Do you think a strong US dollar and hardening yields will continue to weigh on the performance of EMs?
Interest rates in the US will continue to rise. However, a lot of that is priced-in.
The decline in currencies also have been priced-in to some degree. However, there is probably more to go.
What is your view on the rupee?
The rupee could get weaker from here; 5-10 per cent at most. It will also depend on government policies. If they are able to get more foreign investment and increase exports, the rupee fall could be halted.
How do you think geopolitical risks could impact equity markets?
They could be major risks. For instance, what is happening between the US and China is an example. What is happening in Russia is another. Of course, India is very much involved; it is the size of China in terms of population. They also share a border. It would be very important from an economic point of view, for China to increase its military. And that needs to be balanced otherwise one country dominates.
How will the US-China trade war impact India?
India must look at the trade war as an opportunity. For instance, a lot of manufacturing happening in China could move to India. This is also tied in with the earlier point of making it easier for capital to come in. More important — it means sitting down with the US administration and doing a deal. Trump is a dealmaker; you have to treat him like a businessman. You have to tell him: ‘Look I will give you this if you give me that’. I think the US would be quite interested in that if India was amenable to it. With oil possibly going to $100 a barrel or close, the import bill will shoot up. So, such reforms are critical at this stage.
