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India is on top buy list now; we see good opportunities in some NBFCs
Mark Mobius, Founder, Mobius Capital Partners
Oct 19, 2018 | Source: CNBC TV18
On higher yields in the US and impact on Emerging Markets: There is no question that higher interest rates in the US and the Fed raising rates is having a tremendous impact, but you must remember a lot of this has already been anticipated by the markets. Earlier this year, I figured that the US Fed would raise interest rates at least 5-6 times in one year. We have already seen a number of increases by the Fed. So, this has been pretty much taken in by the markets the reason why currencies have weekend so much. Mr. Mobius believe, that there could be little bit more outflows, but then eventually it will come back in.
On India and whether NBFCs are a worry: Of course we would worry about them. We know that the bad loans are very numerous in these banks and, probably, the numbers that we are seeing are not exactly accurate. They are probably worse than it looks. But given that situation, there are probably some good opportunities in some of these NBFCs, and other areas in the financial sector in India. So, at Mobius Capital Partners, the team is looking at this very carefully. Particularly, because of the prevalence of bad news in the sector currently.
Would you worry about any domino effect from any of the companies defaulting? Already, as you know, we had this infrastructure situation, where the government had to step in to bail the company out. That itself could have been very destabilizing if the government had not acted. I think that is the biggest one. I don’t think you are going to see anything bigger than that now, and things are probably stabilizing.
But I think it is very important for the Indian government to make it easier for investors to put money into the market from overseas.
In our case, for example, we want to invest in India, but we are going to have wait for 3-5 months before we get permission to put money into the market. So it is very important for the Modi government to move on, to make things easier for investors.
On consumption dropping off, if NBFCs don’t lend much: Many non-banking institutions were a little bit too aggressive and they are now sitting on incredible bad loans. So, given the degree that they will pull back in order to get some liquidity, consumption will decline. But if you look at the overall picture in India, the number of people that are borrowing to spend, is much less in other parts of world, at least in developed countries like the US. So I don’t think it’s going to be a major problem. The big problems will come from large institutions, large borrowers who are in trouble and who represent a lot of bad loans in the banks.
On sectors to buy in India: We are particularly interested in the consumer sector. We believe that the consumer sector in India is going through incredible changes – particularly because of what is happening on the internet. So, this combination of tradition retail and internet buying will create exciting opportunities. At the moment at Mobius Capital the team is not focusing much on banks as it believes, a lot is going to be done in order to reform the banking sector and to wipe out the bad loans and deal with that.
On whether to buy into the market right now: Mr. Mark Mobius said they will buy now because there are a number of stocks on the list, which we think are very attractive. The team has specific opportunities in India that they like.
On whether equites and currencies will fall more through the course of this year: The currency could get a little cheaper in Mr. Mobius’s opinion. It has come down a lot, but could get a little cheaper. A lot depends on the degree to which the government can open up the market and bring in more foreign exchange. I think that is going to be very important. But, according to him we are near the bottom. As you know, in most of these emerging markets the currencies have come down so much we have reached near the bottom of the range.
On worries regarding India’s CAD caused by INR depreciation: Yes, it is a big worry now. The deficit is something that foreign investors look at very carefully, to ascertain whether the currency will get weaker. More importantly, there will be currency controls. That would be a big damper for foreign investment. In this respect, I believe India could benefit from the trade war between the US and China, because China may not be able to export a number of things to the US and perhaps India will be able to replace China in that regard. This is something the Indian government should look at carefully. In that context, I have to emphasize, that they have to reduce the regulatory framework and make it much easier for investors to come in, establish factories and export. It is going to be the life blood for the country, going forward.
Among foreigners, there was a worry that the RBI didn’t hike rates enough to shore up the rupee? I believe that currency is all about confidence. It is not so much about interest rates. For example, if you look at the euro now, if you put money into European bank in euro, you will get some percent, far less than even 1%. In some cases, you will get nothing.
In fact, earlier this year, you were actually paying the bank to keep the money. Now, that is because people are confident of the euro. So, I believe interest rate is just one factor and sometimes it’s pretty irrelevant.
On pecking order in EMs right now: Believe it or not, India is right at the top of the list, despite the fact that we cannot invest right now. Brazil is up there. We are very interested in what is happening in Turkey, maybe an opportunity going forward. So, there are tremendous number of opportunities for us.
On whether tariff war will slow down the EMs and Global economic growth: There will be a slight slowdown, but not so much because of trade war but because in case the of China, the Chinese market has gone so big, you cannot expect 9-10 percent growth, we will be happy with 5-6 percent growth in China. Looking at the total global situation the China weightage is very high. So if you take just an average mean of all the growth rates around the world, I don’t think you are going to see much of decline, I think you are going to see some good growth. Because in some countries that are undergoing incredible reforms such as Brazil, Argentina, and we expect these countries to come back up and start growing again.Related Keyword
Emerging Markets
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