Indian markets not in a bear phase yet

Joseph Bernhard Mark Mobius
is among the best-known emerging markets fund managers. After having spent over 25 years at Franklin Templeton – including being the lead manager of Templeton Emerging Markets Investment Trust – the 82-year-old stepped down early this year to start Mobius Capital Partners. In India for the Morningstar Investment Conference, the investment guru says that India should look at the positive side of the fall in the rupee by encouraging exports and taking advantage of the U.S.-China trade war. Excerpts:

Do you expect the rupee to fall further? What will be the impact on the stock markets?

You might see another 10% correction in the rupee from the current levels. I think the stock market has not completely priced it in. Although the rise in the U.S. interest rate and dollar is already priced in, we may see some more correction once the market level rises.

Indian equity markets have been quite volatile and even corrected a lot from the highs. Some are even saying that we are in a bear market?

Well, it depends on how you define a bear market. But while emerging markets are down 20%, Indian markets held up pretty well. So, I don’t think that Indian markets have entered a bear market in a true sense since it is said that a 20% fall from the high is a bear market. While I think there will be further corrections but those will not be huge. There are a lot of potentially good things, but the big problem you have in India is liquidity. There is an infrastructure company in trouble that has reverberated in the whole system. So, banks are constrained and that affects everybody.

What are the key concerns?

Liquidity is the main concern. And, the issue is that despite the liquidity problems, the restrictions on capital coming in are very severe. In our case, we had to wait for six months to get approval to enter the Indian market. So that makes it difficult. Another big worry is the continuity of the reform movement. That is very important.

The Modi government has to keep hammering away at these changes. There has been a misstep in currency (demonetisation). That was unfortunate because it set back a lot of the reforms that he wanted to do. But, I think going forward he really has to accelerate the reforms. And that will solve all your problems. Oil may go to $100 or even $120 but you got to have exports in order to pay for that. That is why this is very critical for India.

Are you saying this is a good time for India to streamline regulations for exports?

You have a situation where the factory of the world is China. Why is it the factory of the world? Because of its exports to the U.S., which is, by far, the biggest consumer. Just think about it. U.S. has a $300 billion trade deficit with China each year.

Now, if India could get $100 billion or $200 billion of that, can you imagine what it would mean for foreign reserves. You will not have to worry about the oil price if you are exporting to that degree. But how do you get this? You have to make it easy for people to come in and manufacture.

For example, China brought in a one-stop policy, which means that you come to just one office and get everything done. You get all the licences in one stop. That makes it easy. And I am not just talking about foreign investors. I am also talking about domestic investors as they also have the same problems. If you make it easy for them, then capital will come in.

October is turning out to be one of the worst months in terms of foreign money outflows.

I think we will probably see a slowdown in the outflows because the situation globally is that money is coming back into emerging market funds. But, it also depends on what share India can get of that.

In our case, we want to put $20 million into the country but can’t due to the restrictions and so we have to go to elsewhere.

I think there will be further corrections but those will not be huge

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