NEW DELHI :India remains one of the two largest markets in Mark Mobius’ investment portfolio. In an interview, the founder of Mobius Capital Partners and a seasoned emerging markets investor expressed strong optimism on India’s potential, and said that he plans to ramp up his exposure to the country. However, he has steered clear of investing in shares of Adani Group companies due to their elevated debt levels. Edited excerpts:
NEW DELHI :India remains one of the two largest markets in Mark Mobius’ investment portfolio. In an interview, the founder of Mobius Capital Partners and a seasoned emerging markets investor expressed strong optimism on India’s potential, and said that he plans to ramp up his exposure to the country. However, he has steered clear of investing in shares of Adani Group companies due to their elevated debt levels. Edited excerpts:
Do you think we are at the end of the global interest rate tightening cycle?
Do you think we are at the end of the global interest rate tightening cycle?
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Inflation is beginning to level out in the US and the main reason for it is that the US Federal Reserve has not only raised interest rates but has restricted the supply of money. Inflation since June last year is on a downward trend, from about 9% to about 4% now.
Money supply in the US since 2020 had risen by about 40% and peaked in March 2022. You may see the Fed doing a little bit more, but their job is probably done. The Fed’s target rate has gone up to 5% and is probably peaking now.
Is the world headed into a recession?
The main concern is that the prime lending rate has gone up from 3% in 2021 to 8%, which is very high for businesses. That is why you are seeing a slowdown in the American economy and a global slowdown as well. We could be heading into recession, but the US government spending is holding us back. They have programmes for infrastructure, semiconductors and many more and government expenditure, to some extent, will alleviate the pressure of high interest rates.
What will be the impact on flows to emerging markets and especially to India?
Given that the US markets have shown signs of sideways movement, investors want to diversify. Compared to the US, the emerging markets have done quite well recently, primarily because of China which represents about 30% of the emerging markets index.
However, India has done exceptionally well and is being noticed by investors globally. The outlook for India is very good and assuming that the Indian government continues its reforms process and pays attention to investors coming to India, it is going to be a big boost to the country.
Are you increasing allocations towards India or other emerging markets?
We are invested into India and hold a lot of stocks. We go into a market taking a long-term view and India is our favourite. Two biggest markets in our portfolio are Taiwan and India. In India, we are invested in software services, industrial metals and medical testing. So, we are very bullish on India, and will increase our portfolio as we go forward.
Are you considering investments in Adani group stocks?
We did not invest in Adani because of debt. We do not want to have investments in companies with high debt and that is the reason we tended to stay away from Adani companies.
Do you think India is expensive compared to other emerging markets?
A lot of people go by price-to-earnings (PE) valuations, but we find that it is not a very good measure of expensiveness. We consider return on capital which has to be over 20%. That apart, earnings growth must be 10% or more. A number of companies in India meet these criteria.
If a company has a high return on capital, it will have low debt and if it is a growing company, the PE ratio, even if it is high, will go down quickly.
Therefore, India is not expensive as it is growing at a faster pace than many countries around the world and its gross domestic product (GDP) growth is incredible.
What are your views on the IT sector and investment opportunities in banks?
Technology is such a wide field that it needs to be divided into different segments. For instance, we have fabulous companies that are doing designs and software for semiconductors in Taiwan. Their business is entirely different from companies that are doing operational software for companies. You have got to differentiate between different segments.
We do not like to invest in banks as they tend to be very opaque. It is difficult to understand what is going on in their business and we do not know whom they are lending to and how much. For instance, in the US, many banks that were investing in bonds when interest rates were low started losing a lot of money on paper as interest rates rose. I am not saying banks will not do well, but we would not like to take a chance.
Are there risks of a global contagion owing to the US banking crisis?
Central banks will not allow major banking systems to fail simply because they will become very unpopular and that is why the Federal Reserve stepped in, rescued banks and saved depositors’ money. Globally, no major banking system will be allowed to be destroyed.
While some banks may be allowed to go under, meaning being taken over by other banks, governments will not allow complete collapse of the system.
Which sectors or stocks do you think may perform well?
We generally like companies which are utilizing technology, irrespective of the sectors. We invested in Blue Jeans company in Turkey that was utilizing lot of technology selling their products on the internet and designing their production. To us, the sector is not as important as execution.
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