Deep correction quite possible before year-end: Mark Mobius

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Deep correction quite possible before year-end: Mark Mobius

The buzz about further quantitative easing by the US Federal Reserve doesn’t seem to have had an impact on the flattish tone of the markets there. But this has built up a lot of debate on the West on what the quantum will be and the impact of the said aid.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Sensex earnings to grow 25% (YoY): Motilal Oswal Sec Mkt dynamics strong; may rise if flows persist: BlackStone ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets

FIIs have been looking at India as a safe haven, resulting in markets shooting up closer to its previous all-time highs. Asserting his faith in the India story, Mark Mobius managing director of Templeton Asset Management, said though Brazil and China look cheaper, it was not the time to cut exposure or exit India. "In fact we have raised our exposure to India." He, however, warns that there is a huge possibility of a deep correction before the end of this year.

Talking about the US to CNBC-TV18's Udayan Mukherjee and Sonia Shenoy, Mobius said quantitative easing will continue, albeit at a slower pace as the Fed cannot turn a blind eye to inflation.

Having seen inflows across equity funds, he feels that equity traded funds though very influential, are not dominating inflows. "Weight of emerging markets is going up in institutional portfolios. In fact a lot of recent money is performance chasing," he said, adding that BRICS funds are doing well largely due to Brazil.

Sector/stock plays

While Mobius is bullish on Infosys and Sesa Goa , he is concerned about the mining and minerals major's foray into the oil space. The global investor is also upbeat about the aluminum sector and owns stake in  Hindalco from the space.

Having a fairly big emphasis on the commodities, he says that the trend there is up with some volatility.

Commenting on the banking space, he says the banks here look expensive compared to Brazil and Thailand. "We have sold the sector in this rally. And thus don't own any Indian banks in our portfolio."

Being wary of the utility companies in India he says we have also pared down auto holdings here.

Happy with the development on Taro, Mobius says he will be glad to see Sun Pharma takeover Taro. Though he feels that Sun Pharma is a bit expensive, there is a possibility to invest in the stock.

Here is a verbatim transcript of the exclusive interview with Mark Mobius on CNBC-TV18. Also watch the accompanying videos.

Q: What is your sense is a big round of quantitative easing (QE2) two coming in the next few weeks?

A: I believe that they are going to continue quantitative easing, but not at the pace that they were doing previously. We have already seen a deceleration of money growth in most of the countries around the world in the US, in Japan and so forth. But they are not going to risk moving down the supply of money, it just that they are not going to increase it fast as they have in the past.

Q: So, in that sense, do you think the market might be disappointed at the size and nature of the next round of quantitative easing?

A: I don't think so because there is enough momentum now underway to create a sense of growth and willingness to take more risk. In another words, you are going to see more money coming out of the banks and more people willing to take risk in markets like emerging markets.

Q: So what is the way the market will read this next move by the Fed? If it's not very large, as you say, would it have some confidence or drive some confidence that things are not so bad after all and the Fed probably is saying that growth will pickup sometime in the next year?

A: That's right. Of course the Fed wants to project a very confident stance, but they are clearly concerned. I believe the market has factored that in and realised that the Fed is certainly not going to throw in the towel, but at the same time they are going to very mindful of inflation. That's the reason why some of the Fed members have been voicing concern regarding the possibility of inflation coming back.

Q: What is your sense of how things stand in the West? Do you think things have stabilised, we are in a low growth phase, but there will be no further accidents and we will probably start coming out of this slow growth phase sometime next year or you are not quite so sanguine?

A: I believe that yes, there will be some acceleration in growth next year and the following years. There will be recovery. Most of the bad news has already been factored in. As I mentioned some of that money that's been stuck in banks and some of the companies that have been very reluctant to borrow, now are going to be coming back. That's the reason why you are seeing a lot more initial public offering (IPO) activity, lot more secondary issues because they building up war chest, so to speak, for expansion.