Mark Mobius Is Not Worried By India’s Growth Slowdown, Bets On Tech Stocks
India presents a better opportunity to invest than other emerging markets, says Mark Mobius.
Veteran investor Mark Mobius thinks that even with economic growth at a six-year low, India presents a better investment opportunity than other emerging markets.
That, according to him, is due to improving governance, lower corporate tax rates, falling interest rates and the U.S.-China trade war.
“I’m still very positive on India,” the founder of Mobius Capital Partners LLP, told BloombergQuint in an interview. “Many countries would love to have the kind of growth India has. We are expecting 6 percent for the whole year. This is very good growth. You must remember you cannot have too rapid growth because that leads to excesses.”
Mobius said Prime Minister Narendra Modi government’s focus on efficiency through digitising procedures and making them simpler will bear significant fruit in the future. At the same time, corporate tax cuts and lower interest rates would spur companies to pare debt, banks to clean up their balance sheets and an eventual surge in investments, he said.
I expect that perhaps by the beginning of next year you’re going to see a surge in lending and more capital investments.Mark Mobius, Founder, Mobius Capital Partners
The emerging markets investor is looking for value in Indian mid- and small-cap stocks. Particularly in the technology sector as he thinks they will benefit from the U.S.-China trade war.
“There are going to be a lot more tech exports, not just software but also hardware, from India as manufacturers shift outside China to other markets,” Mobius said. “There is an incredible opportunity for India to pick up some of the slack. That’s where you will see, not only low-cost manufacturing like garments or shoes, but some of the technological items like cell phones, electric equipment, etc. doing well.”
Watch the full interaction here:
Below is an edited transcript of the interview
From last Diwali to this, the Nifty 50 index is up 10 percent. Which is not bad, but does it leave you wishing for more?
I am still very positive on India. Not only because of the tax cuts but something that’s underlying. The BJP’s approach is making government more efficient, digitising government procedures, making things simpler and easier for the people on the ground—particularly for small businesses. It’s a significant change taking place and it is pretty much unnoticed. But I think it will have a big impact on the future growth of India.
Corporate tax cuts may boost bottomlines and increase risk appetites of companies. That is seen as a precusor to growth. How do you see this playing out?
There are two things at work here. Of course, the tax cuts are one. But also, don’t forget the interest rates. A cut in interest rates has a very big impact. I personally feel India has more to go in terms of how much interest rate cuts they can tolerate. They should not worry too much about the budget situation. In order to get growth, lower interest rates will be very good. And that would be in line to what’s happening in global emerging markets.
Last Diwali came just a few months after the shadow banking crisis hit the system. Do you feel recovery will take more time, at least till this last-mile funding engine fully kickstarts again?
We can’t expect quick results. The tax cuts help. We would expect companies to make more capital investments. But many of these banks have to get away with the bad loans that they made and for companies the debt that they’ve incurred. They have to cut those down. Some of that money would not go into capital investments but in paying back loans and straining out balance sheets. But after that, you will see a surge in investments that will be very good for the markets.
What will be your view for the banking sectors with resolution processes getting longer?
What we have to do is to wait till the banks straighten out their balancesheets. This takes time. It’s not easy. There was a lot of deadwood there. I expect that perhaps by the beginning of next year you are going to see a surge in lending and more capital investments. By the way, another aspect is a cut in personal income tax. I think the Modi government has to encourage consumer spending and tax cuts at that level will be very good.
You always hunt for value in the mid- and small-cap space. Looks like that is starting to play out now. Does this mean mega caps will start to see interest waning away?
I think so. You will see more diversification by investors. Not necessarily away from the big-caps. You will get big-cap investments. But small and medium sized companies will probably do better given the new environment. Government measures to make life easier for these people will work their way into the system.
How concerned are you about the growth projections being revised down for India?
Six percent is really very, very good. Many countries would love to have that kind of growth. I know the latest figure was 5 percent. We are expecting 6 percent for the whole year. This is very good growth. You must remember you cannot have too rapid growth because that leads to excesses. I believe that the level is very good. I expect next year will be a lot better.
According to many, India is not a one-year market. Do you agree the foundations laid down by the government have set it up for the next big spurt of growth?
Yes, I believe so. That is very much on the cards. We are going to see terrific behaviour of the markets in India. Very exciting.
Which are the pockets exciting you?
We are still looking at mid- and small-caps. I am particularly interested in the tech sector. There are going to be a lot more tech exports, not just software but also hardware, from India as manufacturers shift outside China to other markets. There is an incredible opportunity for India to pick up some of the slack from the U.S.-China trade war. That’s where you will see, not only low-cost manufacturing like garments or shoes, but some of the technological items. Cell phones, electric equipment et cetera.
How much of a risk do you see on the global front?
Brexit. You don’t know what’s going on. Nobody knows. It’s so confusing. I think the bottom line is nobody knows what will happen. They do expect a split, but not how it will develop. My guess is that it will not be as dramatic as people expect. The trade flows will not change overnight. There will still be a lot of lines tying the Europe and U.K. Not as bad as what is being expected.
Your view on the government’s divestment plan?
Tremendous. It’s a wonderful idea to have privatisation programmes to unlock value. Not just that but also to make these companies much more profitable and become taxpayers to the government. More importantly, it is important for India to look at the international bond market. It has not been a big player in the global bond market. And it is about time that it started issuing international bonds to finance some spending. Not to go overboard, but just beginning to tap those markets given the incredibly low interest rates you have.
Your view on gold? They’ve returned twice that of equities. Is it a good time to divest to gold?
I definitely do. I’ve been bullish on gold for a few years now. You have to have gold in your portfolio. I am not saying put everything in it but 10-15 percent makes a lot of sense. With the proliferation of money supply around the world and cryptocurrencies, nobody knows what its like. Gold is a very good hedge.