India still offers exciting opportunities: Mark Mobius

Mark Mobius, executive chairman of Templeton Emerging Markets Group and famed emerging markets guru, still believes in the emerging markets growth story. 

In an interview with Jitendra Kumar Gupta, he says India’s story is compelling and its equity markets offer opportunities.

The fear among investors in emerging markets about the US Federal Reserve (Fed) ‘tapering’ its asset-buying programme seems overdone, he says.

Edited excerpts:

If bull markets are born amid pessimism, is this not the perfect time to buy India?

In terms of India, yes, that is true. The pessimism in India is an excellent opportunity, as we are now able to buy companies with good fundamentals at even more attractive prices. Moreover, the government is working towards implementing the required reforms.

…

About five years after the Lehman crisis, markets across emerging economies are trading below their 2008 peaks. How do you assess the period after the crisis and what are the key takeaways for investors

As of August-end, while emerging markets were trading 14 per cent below their May 2008 peaks, these had more than doubled from their lows during the 2009 crisis, and the trend looks like it would rise further. 

We remain positive on the long-term growth prospects of emerging markets. Their strong performances since the crisis are evidence of the resilience and potential of these fast-growing markets.

My advice to investors in emerging markets is they should be well diversified. It is actually possible to have all your eggs in the wrong basket at the wrong time. 

To reduce one’s vulnerability to this eventuality, every investor should diversify. Moreover, there are great opportunities all over the emerging markets.

If you search worldwide, you will find more and better bargains than by studying one nation.

Also, undertake dollar-cost averaging. Set a goal on what percentage of your portfolio you want in emerging markets and then, put the amount each month, through a few years.

Investors who establish such a programme from the very beginning - purchasing shares over a definite period of time -have the opportunity to purchase at not only high prices, but also low prices, reducing their average cost.

…

How would emerging markets fare in the coming months in the event of a US recovery and the withdrawal of monetary support by the Fed?

The amounts continuing to come into emerging market funds such as ours indicate confidence has not been lost among many investors. For those who fear, we feel the fear among investors in emerging markets about the Fed starting to ‘taper’ its asset-buying programme appears overdone.

As we see it, the Fed’s talk of tapering does not necessarily mean it would start tightening rates anytime soon, nor that the money supply would suddenly dry up.

We must remember various quantitative easing programmes have been cumulative, such that the liquidity pumped into the system has piled up and is not likely to disappear overnight. Only recently did banks begin to increase their loans; previously, they were using the liquidity supplied by the Fed to strengthen their balance sheets, and were holding US treasuries. 

In addition, even if the Fed starts to pull back as the US economy improves, other central banks are still generating liquidity, which we feel could support investor flows into emerging markets.
Japan has been embarking on a massive easing programme, which is greater as percentage of its GDP (gross domestic product) than the US programme.

…

Do you believe the emerging market story is over, as many see it? Is the risk-reward matrix changing?

No, the emerging markets story remains positive. There is huge potential in these markets and we expect the continuation of positive developments. Most importantly, the rise of frontier markets within the emerging markets space is giving new life to the entire emerging markets story.

How do you read the current economic environment in India, particularly in the light of the general elections next year? What implications would this have on investments?

We recognise there is a broad consensus on reforms from nearly all the political parties. Individual states are also playing a role in carrying forward reforms. Though many commentators are looking towards the next elections, we prefer to look at individual stock opportunities.

…

Do you think there is value in India at these levels, particularly in the mid cap space?

Yes, we continue to find opportunities in mid-cap stocks, as these include a large number of listed companies. 

The major issue that needs to be addressed, however, is corporate governance. This needs to be improved so that minority shareholder interests are protected and not compromised in favour of majority shareholders.

As a foreign investor, how would you view India’s current situation?

India still offers one of the most exciting opportunities for investments, given its relatively higher growth rates, availability of skilled manpower and high quality of entrepreneurs. 

Moreover, India’s huge consumer market is another important factor that should support the market’s recovery in the future. We continue to look for companies that have attractive fundamentals.

Ultimately, it is not only about valuations, but about corporate governance practices. We believe there is a very strong relationship between good corporate governance practices and a good long-term stock market performance.

...

At 14-15 times next year’s (FY15) earnings, Indian markets are trading at their historic average. How do you assess valuations at the current levels, in light of a possible slowdown in earnings?

Currently, valuations in many companies look compelling, both in terms of earnings and assets. 

Moreover, while the Indian market, as a whole, is trading at a premium to the MSCI Emerging Markets index, it is still cheaper than many of its regional peers.