The Hindu Business Line : Indian markets are still expensive: Mark Mobius

Mr Mark Mobius, Managing Director of Templeton Asset Management, says that things are looking better post recovery in emerging markets but he still advises people to be cautious.

Excerpts with CNBC-TV18's exclusive interview with Mr Mobius:

What do you feel about emerging market equities now?

I think things look much better now, and there has been a nice recovery in many of these emerging markets. But I have to emphasise that we have to be cautious in view of some of the very big rises we have seen over last few years. Many of these markets have performed exceptionally well and the corrections we have seen are normal in a bull market, but we also must keep our eyes on the valuations to ensure that we are not buying stocks that are too expensive.

What is your perspective on global liquidity now, and how much more do you expect the US to tighten or raise rates from here on?

As regards to liquidity, I don't think you are going to see an increase in global liquidity. In fact you will see decrease as result of these interest rates rises. That means more money will flow into US rather than going out into emerging markets. So, it will probably be the general trend towards the US investments. The other factor is what happens to commodity prices because if oil prices continue at these higher levels, then West Asia money and money from Russia will keep the fires burning.

Is the worst over for emerging markets and will emerging markets like India continue to enjoy that flush of liquidity in the next few months as you see it?

I don't think so. I think you are going to see continuing caution in the view of the correction that we have seen. In addition, if you see some of the valuations in some of the emerging markets, they are rather high relative to markets in Europe and America. Of course, emerging markets in general are still cheaper than the US or Europe, but they have come up and they are getting close; in some cases they have gone above what you see in other markets. Emerging markets have better growth characteristics but lot of people are thinking that now global growth will slow down in view of the interest rate hikes.

For India as a case in point, would it be fair valuation or has it moved back into the overvalue zone?

I think in India we have had overvaluation for some time and that is still the case even after these corrections. One must remember that other markets have also corrected and so the valuations in India are fairly high, much higher than the average emerging markets. The latest numbers that I have is that in India it is about 20 times versus 14 for emerging markets on a price earnings basis. On a price to book-value basis, about four times in India versus 2.3 for emerging markets. So, there is no question that India in general is more expensive. However, there are some individual companies in India that are attractive in certain sectors, are not expensive, and those are the ones that we have concentrated on.

Are you in the camp that believes the US is headed into recession in the next few months? Secondly, how much do you think the Fed will raise rates from here on?

I don't see recession on the horizon, we have to go with what the numbers are telling us in the US and Europe. The numbers are saying that growth is still good and we are seeing good growth in those countries, in those areas. So, I think it would be premature to look at a recession globally. I just don't see that yet. On interest rates in the US, given what they have done so far, maybe they are a little more cautious. It really depends on what key leads they are looking at, but I am sure they are concerned about growth; they want to continue good growth in America. They will be cautious about interest rates and if you are looking at inflation, there is no question that inflation is moving up at a higher pace. So, one can argue and say let us not count oil, let us not count crude and then the inflation does not look too bad. But I don't think that makes sense because they have to look at the whole picture and the where inflation moves.

What do you like in India? You made the point that while the overall market maybe expensive, some parts of the market may not be. When the big fall happened, what did you pick up in India?

The kind of stocks that we have been looking at both in commodities and consumer sector have been the ones we have our eyes on. The consumer market in India is growing at a fast pace and we want to get that exposure. On the commodity side, some companies in India have a good handle on commodities like oil and gas, iron ore, etc., and those are the companies we want to look at, because commodities seem to be continuing to run at a very high level. Maybe even if they correct, they still would be rather high according to our calculations.

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