Mark Mobius expects 5-10% correction in select sectors; bets on NBFCs

Emerging market doyen and veteran fund manager Mark Mobius expects a further correction of 5-10 in select sectors in the current financial year and believes that rest of the negatives have already been factored in.

In a candid chat with Moneycontrol, the founder of Mobius Capital Partners feels that the Indian government should be more pro-active on the process of approvals as he is keen to make investments in Indian markets.  He said the Narendra Modi government must streamline processes so that money can come in more easily for investments.

Even at the ripe old age of 82, Mobius revealed he is on the road 205 days a year, visiting companies in almost every corner of the globe.

Mobius, who quit as head of Franklin Templeton's emerging market funds in January, has started Mobius Capital Partners - a fund management firm focussed on environmental, social and corporate governance in emerging and frontier markets. His company aims to pick up direct equity stakes in companies instead of buying exchange-traded funds to generate higher returns.

Mobius has spent more than 40 years working in emerging markets all over the world. He joined Franklin Templeton in 1987 as president of the Templeton Emerging Markets Fund, Inc.

He has written several books, including Trading with China, The Investor's Guide to Emerging Markets, Mobius on Emerging Markets, Passport to Profits, Equities—An Introduction to the Core Concepts, Mutual Funds—An Introduction to the Core Concepts, among others.

"My personal theory is that countries that make it easy for travellers to enter tend to be friendly to foreign investment. My radar starts from the time I pass through customs and intensifies as I drive down the town," Mobius said.

Mobius, who is awaiting approval from SEBI for registration of his investment firm, said he has already spoken to five NBFCs.

Keen on India

In the model portfolio of Mobius Capital Partners, among emerging markets, India and Brazil feature at the top in the pecking order.

Mobius is looking to invest in Indian markets at a time when foreign investors are pulling out aggressively due to uncertainties in the financial sector, rising oil prices, depreciating rupee, and fiscal worries ahead of big general elections next year.

Since the start of 2018, foreign investors have pulled out $13 billion from Indian debt and equity markets.

Mobius feels that higher import bill could put India’s fiscals at great risk as he expects crude oil to touch $100 a barrel by early next year. He also said that Indian banks’ non-performing asset (NPA) numbers may be worse than they look. But he sees good opportunities emerging in NBFC and other areas of the financial sector.

Mobius Capital will earmark 20 percent of its investments each in India and Brazil; followed by Turkey, Korea, Taiwan and Mexico which could each see about 5-10 percent allocation.

He expects Indian currency to weaken further but 'not significantly' but he was quick to add that most of the fall has been discounted as he believes participants are aware that interest rates in America will continue rise.

Mobius likes consumer discretionary and financials space for investments . He feels the financial sector has been hit the most and there are good opportunities for investments, particularly the NBFC space.

"There are some NBFCs which are very interesting and we will be looking at them," Mobius said.

Foreign investors

When asked how are foreign investors looking at India, he said: "Most FIIs are looking at India favourably. People are seeing great opportunity in India particularly now that China is in trouble because of the trade war with US. India will benefit from this provided that the Indian government allows us to invest."

He further said FIIs that have been net sellers so far in the market, should start coming back to India for investments as across the global the trend has reversed.

He suggested that Reserve Bank of India must not hike interest rates as that would have an adverse effect.

"It will not be good because it will increase inflation. The problem in India is not excess spending, the barriers, rules and laws that withhold companies are an impediment," he said.

Need to Export

With regards to a trade war, Mobius said now it is the opportune time for India to benefit because of US-China trade war. "Indian can sit down and do a deal with Trump. Indian could do a free trade."

He also said if it will help India increase its exports and in turn bring down the already high current account deficit.

"There will be growth and there is no reason why it can’t happen because India has the labour, the exchange rate is low India has the possibility of manufacturing for the US and US has the technology to export so it will be a great win-win situation," he added.

Impact of General Elections

He is not too worried about the political risk attached to equity markets in India because of general elections next year.

"I am not too worried because India is on the path of reforms so whether it is Modi or any other government. They all have to move in that direction. India has a young population, all have cell phones and they want movement in reforms and government must respond to that," he signed off.