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Last Updated : Feb 19, 2018 04:58 PM IST | Source: CNBC-TV18

Very positive on India & believe India will surpass China in its pace of growth: Mark Mobius

In an interview with CNBC-TV18 Mark Mobius, Former Executive Chairman of Templeton Emerging Markets Group spoke about his reading of the market and his outlook.

CNBC TV18 @moneycontrolcom

In an interview with CNBC-TV18 Mark Mobius, Former Executive Chairman of Templeton Emerging Markets Group spoke about his reading of the market and his outlook.

We are very positive about India. We think India is now at the take-off stage and will probably surpass China in terms of growth going forward, he said.

Below is the verbatim transcript of the interview.

Q: How much are you going to invest in this Equanimity investments and what will be your role in that fund?

A: Equanimity is doing a very interesting private equity investing focusing on new innovations, new technology and their fund has just started and I have invested in the fund, small amount, my own money and I think they are going to be doing a terrific job -- I was associated with Rajesh Sehgal for quite a long time. We are working together in Franklin Templeton, so my interest is very great.

On the other side, I am interested in India on a portfolio management side because I am starting a new company in London with expressed purpose of investing in emerging markets and the focus will be on ESG – environmental, social and governance aspects. So I am now interviewing various research organisations here in India who might be able to help us in our effort and we hope to be able to launch something by the middle of the year.

Q: This is very interesting. Tell us both then – how much are you putting in Equanimity, your own money and how much is the other fund – your emerging markets fund going to have by way of a corpus?

A: I cannot give you the exact amount, that is confidential but it is reasonably significant in the context of what he is doing and his emphasis of course is not necessarily ESG. His emphasis is on technology, rural market technology, that is what I think. In our case, in the company that I am starting in London, the emphasis will be on ESGN activist ‘Impact Investing’.

Q: For your own fund, in London, do you have any corpus in mind?

A: Eventually it will be hundreds of millions of dollars, when we are starting of course we will probably start with roughly USD 100 million but then will grow from there.

Q: 100 million is your fund, at what stage are you in this fund, have you already registered with the authorities in London, is all the legal stuff done with Securities and Exchange Board of India (SEBI) as well, are you good to go?

A: We are in the process right now and we are starting to recruit people but it is going to take time. These licenses take quite a long time.

Q: Let me come to this fund of yours in London, what do you mean when you say ESG, environment, social and governance means what in stock terms?

A: What I wanted to emphasise here is not necessarily companies that already have achieved good environmental practices or good social practices or good governance practices. We are interested in companies that have not achieved those yet but have the potential to improve. So that is where the Impact aspect of what we are doing comes in. So it can be any number of companies as you know, they are many companies in emerging markets, in frontier markets that need big improvements in these areas. So that is the emphasis.

Q: I get your point but when you say environment, we probably understand it or say a wind company or a solar company but what do you mean by social, what do you mean by governance stocks? We understand fast moving consumer goods (FMCG) and sectors like that, how should we understand social or governance in the form of stocks?

A: Let me give you a very specific example. There is a company in China that imports waste paper from the United States, waste cartons and converts them into new cartons. There is an example of where they are helping the environment by reusing waste that normally would be burnt or put in waste stores, so that is an example.

The next thing is we look at a company like this and say okay, what kind of social impact that they are having, how they are treating their own workers and we went to this company and we saw that they were doing a pretty good job in cleanliness of the plant, making something using waste paper is a very dirty business but they were very careful in showing that the plant was clean and the workers were protected from any fumes and so on. That would be the social aspect of what we are talking about.

Of course, the governance comes in when – are they open to us, are they willing to talk to us about the company, do they listen to minority shareholders, do they have equal rights for all shares, that sort of things.

When we talk about social, it could cover any multitude of areas. It could involve the employees of the company but it also could involve the people they are serving.

Q: Will this be listed stocks or will it be unlisted stocks that you will be looking at?

A: In the case of the Equanimity, they are looking at unlisted. This is private equity. In the case of the company that I am starting in London, this would be listed companies initially.

Q: Now about the current situation in the market, how do you feel about the Indian markets? We have lost about 8 percent in the past month from the recent all-time highs, does it look like we may lose more?

A: Yes, I think it is possible to have more correction. You must remember that not only India but the US market and many other markets around the world particularly the developed markets in Europe and the US have reached high points. On a historical basis, there is a reason to believe that you are going to have corrections from these very high levels that we are seeing now.

So, talking to investors, I tell them, look, keep some dry powder, keep some cash available for the opportunity when the markets correct and come down. The interesting thing about the developments now is that with the US dollar getting weaker, emerging markets are looking pretty good but of course, they would be affected if there is this significant downturn.

Q: I was going to ask you about global markets just as well. In 2018, do you see higher inflation and higher yields and will that have a big impact on equity markets?

A: If there is higher inflation, that would be very good for equities particularly if interest rates don’t catch up. So you have a negative real rate. This generally will be good for equities. So we have to watch that space carefully. There is no question – interest rates are going up. The Fed is definitely going to want to raise interest rates particularly if the unemployment situation improves in America, so you have that aspect.

On the other side, of course, weaker dollar changes the picture as well. That may attract money coming into the US but more likely money will be quite cautious in the face of a weaker dollar, which will be good for other markets including emerging markets.

Q: Let me come to Indian banks, they are going through a terribly rough patch. Already for the past several quarters, they have been declaring larger and larger non-performing assets (NPAs) or bad loans and now there is this near USD 2 billion fraud in Punjab National Bank (PNB), your thoughts?

A: This is quite an amazing situation with PNB but you must remember, it is prevalent globally. You have fraud in every direction, in banks around the world and it is just not in India, it is not just in China, it is not just in the US, it is happening globally despite all the regulatory efforts, you do have these cases.

But it comes down to confidence at the end of the day, if you take the case of PNB, the Indian government is going to step in and say, look, we will not allow this bank to get into trouble and we will work something out at the end of the day. So I am not that worried about it because we have realised that these things do happen. The good news is the fact that it did come up, that was revealed means that all the banks will be ultra-careful to look at their systems because definitely, there have been faulty systems, that something like this can happen.

Q: I am glad you are looking at it positively but how are you looking at the Indian markets 12-18 months down the line because there are going to be a spate of elections from now to then?

A: We will be watching that very carefully because the degree to which the reforms that Prime Minister (PM) Narendra Modi is implementing and has implemented, if there is any pullback, any step backwards, that would be a bad news. I don’t think that will happen. I believe that the benefits that the reforms already implemented, have had on the society as a whole, will be reinforcing the need for more such reforms. So we are very positive about India. We think India is now at the take-off stage and will probably surpass China in terms of growth going forward.

Q: What looks attractive to you in India right now?

A: I would start with the banks. The fact that you had this situation with the banks – the banks are going to continue to survive and thrive and I would focus on those banks that are improving their digital offering because there are incredible improvements being made in the digital side and the government’s efforts by the way is the one government we formed has been very beneficial in setting up this payments system on a national basis is going to be incredible boost for banks who – and this is the big who – will be able to utilise that advantage. So very important.

Q: Which sectors other than banks, next to the banks?

A: Next to the banks - I would have to say we are looking at this medium-size companies that are entering into new services, new consumer services, new industrial services in every direction. I have been meeting with the number of companies that are very interesting and are doing very specific services for industry and the consumer. For example, companies are working on new technology on two-wheelers, that sort of thing is very interesting.

Q: I would assume, you mean the electric vehicles. I thought you would mention sectors like insurance, many of those stocks have done well and more are going to list, you like them?

A: Of course, again those insurance companies that are able to utilise the digital world are going to be in a much better shape and the advantages are tremendous. The thing that is hitting these insurance companies now in terms of more efficiency and those survivors will be the ones that are able to utilise the digital world and in offering services and also in gathering clients.
First Published on Feb 19, 2018 04:02 pm

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