My interview with Mark Mobius

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Mark MobiusThe Indian equity market lost momentum last week due to global concerns, rising interest rates and higher valuations. Jitendra Kumar Gupta speaks to Mark Mobius, executive chairman, Templeton Asset Management, on the road ahead. Edited excerpts:

Has the post-Budget rally taken valuations to an expensive zone?
India has seen considerable interest as have all emerging markets over the last year. Although valuations are currently at a high level, in the past, markets have traded even higher. An improvement in earnings is the key thing to watch out for.

Should Indian investors be wary of global risks in the form of further credit shocks, fallout of Eurozone/Greek crisis and a possible Chinese bubble?
Emerging markets are actually in a pretty good shape. The accumulation of foreign exchange reserves that puts emerging economies in a much stronger position to weather external shocks, relatively lower debt levels and the high level of money supply growth globally should allow them to overcome any short-term uncertainties. As for China, the government already has policies in place to ensure that the country stays on the path to recovery.

Yes, certain sectors have seen prices move up rapidly. This is true of the property market, for example. There are some places where prices have moved up too far, too fast, creating a bubble. But this is not widespread across all sectors. While bubbles, if left unchecked, could have serious long-term consequences for stock markets, the People’s Bank of China has so far shown great diligence at keeping asset inflation bubbles in check. We applaud the recent timely actions of the Chinese government to tighten the economy so as to reign in irrational exuberance. While these actions might have an adverse impact in the short term, it is positive for long-term investors.

Is the growth in earnings, which started in the December quarter, sustainable?
There has been some earnings improvement and, generally, the March quarter is a strong quarter for India, given that a lot of government spending takes place in that quarter as well as the fact that it is the year end. We expect that results, by and large, should not disappoint investors. Over the long term, the growth rate of India would offer a good platform for Indian companies to deliver stellar results.

Given the doubling of commodity prices over the past year, what is the outlook for companies in the commodity sector?
In general, we expect commodity prices to continue an upward trend over the long term because of continued demand from emerging markets and a relatively inelastic supply. Infrastructure development in emerging markets has also led to continued demand for hard commodities, such as metals. As such, we believe that companies in these sectors should continue to benefit from higher prices and demand.

With the hardening of the Indian interest rates, will liquidity be an issue for the markets and what would be its impact on the market?
Since India does not have a fully open capital account, a lot of interest rates in India are determined by government policy and initiative. Inflation in raw materials may ensure tighter interest rates, even though greater agricultural production may lower food inflation. The central bank may choose to act (to tighten the monetary policy) — but interest rates in India are reasonably high already from the long-term point of view.

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