“Reforms, reforms, and reforms,” is the theme for investing under Narendra Modi-led government’s second term, says Mark Mobius, founding partner of Mobius Capital Partners, In a phone interview from Singapore with ETMarkets.com, the 81-year-old emerging markets guru said a majority for Bharatiya Janata Party (BJP) at the hustings augurs well for the economy. Reforms related to labour, infrastructure and ease of doing business were at the top of Mobius’ reforms wishlist for the government. Edited excerpts: How do you view Mr Modi’s win and what does it mean for the Indian market?It means a lot because this first thing which is really important to recognise is that we are in a situation now where everyone was predicting that Modi would in no way be able to garner the kind of mandate that he has now achieved. What that means is that we are really in an amazing situation where he has got the mandate to move ahead with his reforms programme and that to me is quite exciting. Now, would he be able to take advantage of that? We must realise that there are all kinds of bureaucratic and political barriers which prevent him from doing absolutely everything that he wants to do and if he can do 20% of what he is planning, that is very, very good. It is a good opportunity and so I am quite excited about the result. In light of the results, where does India stand in your emerging market preference list?Very high, because we are in a situation now where we can see immense growth in India. Of course, we have already seen that growth. This country is growing at a fast rate and in addition, we are in a situation where the Chinese market is not doing that well, not only because of the trade dispute with the US but also because it is very difficult for them to maintain the kind of growth that we have seen in the last 10 years. So, India is really looking very bright. Among all the emerging markets performances, India stands out. It is really jumping ahead of the others. That is very important. If you were to rank India according to preferences, where would India stand?Number one. Absolutely, number one yes. What is your reforms wish list from the new government?I would say the first one would be employment regulation because you’ve got millions -- in fact, the latest number I read is there about 100 million migrant workers moving around India looking for work. So, there needs to be a reform of the labour laws so that we can see much higher employment. I would say that is number one because the Indian workers are as good, if not better than any workers in the world because they got the language abilities. There is no reason why you can have total employment in India and if you could release that tremendous labour force power, you can see an incredible boom in the Indian economy. After the election results, which are the sectors that you would prefer to buy into in India?We like companies that can take advantage of the infrastructure building that is taking place. By the way, that is the second point I want to make about Modi’s programme. That is getting him to have a much bigger infrastructure programme. He started a lot of infrastructure projects but they have not moved ahead at the pace that they should. Here again it is quite puzzling when you consider the fact that people are looking for work and they got all these infrastructure projects which are not really moving ahead at the pace at which they should really. This is a big challenge and something that we have to look at very carefully. Infrastructure should be the next item on the list. Which are the other sectors that you like apart from infrastructure?The other sector I like is the non-bank financials companies (NBFCs) because of the greater degree of bankable population as result of identity card programme. The fact is that the government is making direct transfers to people and that these people have become much more bankable. The non-bank financials-- as long as they can garner the lowest segment of the obvious group which is growing at a pretty fast pace, would be another one. That said, they are going through liquidity crisis as we speak. What are your thoughts on that? Yes, some of the companies are going through that crisis, which is good in the sense that either there will be consolidation or at least fewer competitors, so that you have better opportunities for those companies that have been running quite efficiently and quite well. Which are the sectors you would stay away from at that point of time? Usually, the bigcap stocks is not what we are interested in. How much has Mobius Capital Partners raised already in terms of funds? How much of this is in India already?We have raised about $180 million. In India, we have about roughly 8% of the portfolio. We would like to have more but as you know, it took us a while to get permission. By the way, that is the other area that needs reforms. There has to be a greater realisation that if an investor wants to put money into the market, the process should be made easy for them. What are your thoughts on the Indian economy now that it has slowed down a bit? High frequency data such as auto sales, air traffic everything have come down significantly. The air traffic number is mainly because of Jet Airways failure. I would not worry about it. In my experience, travelling in India has changed a whole lot and the airports are packed with people. So, there is an incredible growth opportunity there.The problem is that there is a race at the bottom on pricing which is not healthy for the industry and resulted in near bankruptcies as we have seen. People got to wake up to the fact that you cannot continue to try to get market share by lowering prices. I would like to see them get market share by way of better service, more comfortable seating etc. That is where you can really shine, but the way it is done now it is not very healthy. RBI policy is due on June 6th. What are your expectations from RBI?For quite some time, I have believed that the Reserve Bank should lower rates because the gap between inflation and the interest rates in India is just too wide and they should not be so bearish with regards to that. I really feel that they have got to change and hopefully this new guy in the driver’s seat will be able to do that. A lot of economists have questioned the economic data that came out in recent times and there have been a lot of question marks raised on its validity. What are your thoughts there? You have this problem on a global basis. Everybody questions the numbers, in fact, I have a new book coming out about inflation. What we are doing is that there is no inflation. There is deflation globally, because the inflation numbers are constantly changed as the basket is constantly changed. So, you are getting very short term erroneous numbers and that is probably true for other governments statistics as well.But, you do not have to look at the government numbers for growth in the economy. You just have to look at how some companies are growing, how consumption is growing in various categories, the number of cell phones being sold, etc, etc. From these kinds of information, you can get a pretty good idea what is happening in the economy. So I would not be too critical of the government statistics because you are in a situation where a few percentage points one way or the other is not going to make a hell of a big difference. What people talk about 1.2 versus 1.3 this does not make any sense because you cannot be that precise, there is no way you can do that. What would be the theme for investing under Modi 2.0? if you were to name one theme for investing under the government’s second term, what would it be? It will be reforms, reforms, and reforms. I mean all of the changes that are taking place augur very well for changes in the Indian economy and releasing its incredible energy that you can get from what is happening. So I would say it is all about reforms. How difficult is it to find ideas in the midcap and smallcap categories, considering that a lot of smallcap companies have been pretty volatile?It is very difficult to find the right stocks. It is a constant struggle to find companies where you are getting a positive trend in the share price. Number one, where you get growing earnings, where you have a strong balance sheet etc, etc. So there are a lot of dangers to put it that way in stock markets. India is just one of the many markets I look at and you have the same problem everywhere. So, wherever you go, you got to be careful and take your time to study very carefully what is happening. What is the biggest threat to the Indian markets at this point of time? I think the biggest threat would be whether if Modi is not able to move ahead quickly on the reforms because that will give a signal to the market that things are not as good as they thought. That is one thing you have got to be very much aware of. So everybody will be looking at this very, very carefully. We keep talking about the consumption story in India but are you buying consumption stocks in India or are they too expensive to touch? They are a little expensive and it is difficult to find consumption stocks that are really cheap but we continue to look. We are looking at some things now and it is not easy because of the popularity of that sector but nevertheless we want to find something in that sector if at all possible. The opportunities in India to invest in the listed space are pretty less compared to the huge consumption theme that we have. For example, for a middle class urban consumer -- if his or her salary were to go up, he or she would spend it on a better phone which will be a Chinese smartphone or an American smartphone or buy more on Amazon, Myntra, Flipkart. Again, none of these are in the listed space. Does that impede having more options? What are your thoughts?Well I think that is a big issue that we have with consumer sector now and it is not true for India but it is also true for consumer companies around the world. They have been confronted with the internet revolution with more and more companies coming into the internet and people doing internet shopping. The problem is that in order to garner market share, these companies are continuing to lose money. They continue to sell products at low cost in order to get market share, and these companies are being funded by wealthy investors who are willing to accept these kinds of losses. We are not willing to do that unless we see a very strong argument for a turnaround in these companies. You have the traditional retailers who are really under fire because if they do not have an internet strategy, they can be really killed by these companies that are confronting them with crazy low prices.
from Economic Times http://bit.ly/2HJJaTe
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