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Interview with Mark Mobius of Templeton EM Group
Nov 25, 2016 | Source: CNBC TV18
Demonetization’s near term pain for long-term gain: The purpose is very noble. They want to attack corruption and that is fine but I think it would have been better to take another route to attack corruption. In any case it is done and it will have an impact on economic growth and maybe half a percent less than what you would expect and of course it will tie up businesses for quite a while now, at least until the end of the year. So at the end of the day it is unfortunate that it happened. My big worry is that it may hurt Modi's election in November, his party maybe hurt as a result of that. But let us hope that does not happen because we believe the Modi government's efforts at reform are very good.
Duration of demonetization pain : It will be this quarter and then by the end of the year it will be over. I believe people will have adjusted by that time.GDP impact I would say half a percent is probably what we will see because it is not going to last very long as we just noticed. It would be one quarter and overall it would be about half a percent.
Take on inflation and interest rates: I am seeing a fall in interest rates mainly because the Modi government wants that to happen, they want lower interest rates and I believe the inflation picture is not that dire. Inflation is pretty steady and they could afford another interest rate cut. So, we are seeing that longer term despite what is happening in the US. Of course in the US we are seeing better growth, higher interest rates of the Fed but I don't think that is going to have a big impact on the direction of where India is going both in terms of both inflation and interest rates.
An interest rate cut led consumption improvement next year : There is going to be improvement next year; better consumption, lower interest rates and of course these two are aligned, one will affect the other and I believe that the prime rate has to come down. We are looking of course at the repo rate but if you look at the gap between the prime rate and repo rate, it is much too wide. The prime rate has to come down.
Big fiscal stimulus on its way next year : If the government is able to effectively invest in infrastructure and accelerate all the infrastructure projects. This would be very good for the economy. However, as you know this is one of the big barriers that India faces in terms of growth, to accelerate growth. Mind you growth rates in India are very good among the highest in the world but they can even go higher with better infrastructure.
Fiscal surplus next year as the informal economy gets formalized: I think that could be on the margin but I do not think this will be a huge factor because the government will want to get that money out into the economy. So they would want to not have a big surplus and get that money spent. The other factor here by the way is the influx of money going into the banks means as Mr Modi has already mentioned that the bank should be able to accelerate the lending for investments. So that is another factor which we should be aware of.
Equity Market
RBI
Demonetisation
not a well thought-out plan