‘It’s a Bull Mar­ket, It’ll Con­tinue’

The Economic Times - - Markets + Finance -

In­dia is in a bull mar­ket and it will prob­a­bly con­tinue, said Mark Mo­bius, ex­ec­u­tive chair­man, Tem­ple­ton Emerg­ing Mar­kets Group, Franklin Tem­ple­ton In­vest­ments. In an in­ter­view with Biswa­jit Baruah, Mo­bius said in­flows from for­eign in­sti­tu­tional in­vestors (FIIs) could dou­ble from last year. But, he cau­tioned there will be cor­rec­tions and dis­ap­point­ments along the way as In­dia still has eco­nomic prob­lems. Edited ex­cerpts: How do you think this new govern­ment will change In­dia’s eco­nomic land­scape? It’s go­ing to be a won­der­ful, dra­matic change, by which I mean a rev­o­lu­tion­ary change for In­dia. We think a lot more op­por­tu­ni­ties would be flow­ing into In­dia from an in­vest­ing point of view. And, more im­por­tantly, In­dian in­vestors will get ex­cited about in­vest­ing in their own coun­try. And one is go­ing to see big growth in stock mar­ket in­vest­ing and for­eign di­rect in­vest­ments into In­dia. lot of new in­vest­ments com­ing into the coun­try. The other thing he can do, which can be done through the stroke of the pen, is to lift the re­stric­tions on the per­cent hold­ing for­eign­ers can own in In­dian banks. This again would re­sult in much more flows com­ing in. It will de­pend on how fast Modi moves to­wards chang­ing the num­ber of re­stric­tions that were im­posed in the past by the pre­vi­ous gov­ern­ments. Which sec­tors need im­me­di­ate at­ten­tion? In bank­ing, the past govern­ment put re­stric­tions on the amount for­eign­ers can hold in In­dian banks. If there are changes in the norms for for­eign hold­ings, there will be a big im­pact. And, in the con­sumer area, if the govern­ment re­moves re­stric­tions in con­sumer re­tail busi­ness, one will see big in­flows com­ing into the coun­try, with big re­vival in the re­tail­ing in­dus­try. The Sen­sex has ral­lied over 25% since Modi was ap­pointed BJP’s prime min­is­te­rial can­di­date in Septem­ber 2013. Is it a bull mar­ket? Yes, In­dia is in a bull mar­ket and this is prob­a­bly go­ing to con­tinue. There will be cor­rec­tion along the way and there will be dis­ap­point­ments as In­dia still has prob­lems in the econ­omy. But at the end of the day, it will con­tinue to have a very bullish mar­ket. The Sen­sex is trad­ing over 15 times its for­ward earn­ings. Are val­u­a­tions ex­pen­sive? It’s true the earn­ings growth has not been as good as it should be. But, with re­forms, those earn­ings num­bers and es­ti­mates will be re­vised. Val­u­a­tions are stretched. So, we have to be care­ful be­cause there will be cor­rec­tions along the way. One must also re­mem­ber there has to be re­vi­sion of those earn­ings es­ti­mates in view of the re­forms that are planned for the econ­omy. With a new govern­ment in place, which sec­tors would you place your bets on? I am in­ter­ested in con­sumer area in both re­tail­ing and pro­duc­tion of con­sumer goods. And I am also in­ter­ested in the raw ma­te­rial sec­tor, be­cause re­forms in that sec­tor will ben­e­fit as there are a num­ber of projects, in­clud­ing pro­duc­tion of min­er­als, that are held up be­cause of var­i­ous prob­lems and govern­ment re­stric­tions. An­other area that will be quite ex­cit­ing would be bank­ing. Changes in bank­ing reg­u­la­tions and re­stric­tions will have a big im­pact as well. Do you ex­pect record FII flows into the coun­try? Yes, I be­lieve the flows will prob­a­bly dou­ble if the promised re­forms take place. I also be­lieve In­dia can The govern­ment has to re­vise so­cial budget ex­pen­di­tures and en­sure cor­rup­tion is elim­i­nated, which will prob­a­bly re­sult in lower ex­pen­di­tures in the so­cial area and more in­vest­ments in in­fra­struc­ture. There is lot of cor­rup­tion in the so­cial pro­grammes and this has to be elim­i­nated. What are the big­gest con­cerns for global in­vestors on In­dia? I think there could be con­cerns about the cur­rency. If the cur­rency moves up quickly and gets too strong, that will not be good for the coun­try. The sec­ond con­cern is in re­gards to dis­tri­bu­tion of jobs. We need to see dis­tri­bu­tion of jobs through all the states in In­dia and not only a few states. Mid­caps have re­ceived a lot of in­vestor at­ten­tion in the re­cent rally. What is your out­look? Most of the mid­caps will be­come large-caps be­cause of the growth we are look­ing for­ward to. So, I would say there will be won­der­ful op­por­tu­ni­ties in these mid- and small-cap com­pa­nies, which will def­i­nitely go up at a much higher pace go­ing for­ward. But, the econ­omy is still not out of the woods. With in­fla­tion re­main­ing high, how dif­fi­cult will it be to re­vive the econ­omy? There is high in­fla­tion be­cause of the var­i­ous in­ef­fi­cien­cies in the econ­omy, which is a re­sult of var­i­ous govern­ment re­stric­tions. If one looks at the dis­tri­bu­tion sys­tem of the coun­try, one will re­alise that in­ef­fi­ciency is the rea­son. So, it’s im­por­tant that the re­stric­tions are im­me­di­ately changed, and that will re­sult in lower in­fla­tion. In­fla­tion is not only con­trolled by in­ter­est rates. It is also con­trolled by much more ef­fi­cient dis­tri­bu­tion, by us­ing mod­ern meth­ods and in­creased pro­duc­tiv­ity. Scep­tics raise doubts about im­ple­men­ta­tion of re­forms due to large-scale bu­reau­cracy and po­lit­i­cal op­po­si­tion. Do you agree? Ab­so­lutely, and that’s the rea­son there is a chance of dis­ap­point­ment if the changes don’t come at good pace. Modi has in­cred­i­ble chal­lenge in front of him be­cause there is em­bed­ded bu­reau­cracy in the sys­tem which ex­ists. And, any change will need strong hands and some ag­gres­sive stance to over­come these bar­ri­ers. How do you think the end of US stim­u­lus pro­gramme and hike in in­ter­est rates will im­pact emerg­ing mar­kets, in­clud­ing In­dia? With the pos­si­ble hike in US in­ter­est rates, the cur­rency will get stronger and you may see in­flows into fixed in­come in­vest­ments be­cause of the at­trac­tion of bet­ter rate. And that could have an im­me­di­ate im­pact on EMs (emerg­ing mar­kets). Over the longer term, the US will have to be care­ful be­cause higher in­ter­est rate could have neg­a­tive im­pact on busi­ness that needs fi­nance.

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