New Delhi : India remains one of the two largest markets in Mark Moebius’ investment portfolio. A seasoned emerging market investor and founder of Mobius Capital Partners, he expressed strong optimism about India’s potential in an interview and said he plans to increase his exposure to India. However, he has avoided investing in the Adani Group’s stock because of its high debt levels. Edited excerpt:
New Delhi : India remains one of the two largest markets in Mark Moebius’ investment portfolio. A seasoned emerging market investor and founder of Mobius Capital Partners, he expressed strong optimism about India’s potential in an interview and said he plans to increase his exposure to India. But he avoids investing in Adani Group companies’ stocks because of their high debt levels. Edited excerpt:
Do you think we are at the end of the global interest rate tightening cycle?
Do you think we are at the end of the global interest rate tightening cycle?
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Inflation has started to level off in the United States, largely because the US Federal Reserve not only raised interest rates but also restricted the money supply. Inflation has been on a declining trend since June last year, from about 9% to about 4% today.
Since 2020, the US money supply has increased by about 40%, peaking in March 2022. The Fed will try a little more, but perhaps their job is done. The Fed’s target rate has been raised to 5% and is probably at its peak now.
Is the world headed for recession?
The main concern is that prime loan rates have risen from 3% in 2021 to 8%, which is very high for businesses. That’s why we’re seeing a slowdown in the US economy and a slowdown in the global economy. We could be headed for recession, but US government spending is holding us back. They have infrastructure, semiconductors and many other programs, and government spending will alleviate the pressure of high interest rates to some extent.
What will be the impact on the flow of funds to emerging markets, especially India?
Given that the US market is showing signs of a sideways move, investors want to diversify. Relative to the United States, emerging markets have performed very well recently, largely thanks to China, which accounts for around 30% of the emerging markets index.
However, India is doing very well and attracting investors from all over the world. The outlook for India is very good and assuming the Indian government continues its reform process and pays attention to investors coming to India, it will be a big boost for the country.
Are you increasing your allocation to India and other emerging markets?
We have invested in India and hold a number of shares. We enter the market with a long-term view, but India is our favourite. Her two largest markets in our portfolio are Taiwan and India. In India, we invest in software services, industrial metals and medical testing. So we are very bullish on India and will continue to grow our portfolio.
Are you considering investing in Adani Group shares?
We didn’t invest in Adani because we were in debt. We don’t want to invest in heavily indebted companies, which is why we tended to stay away from Adani companies.
Do you think India is more expensive than other emerging markets?
Many people rely on price-to-earnings (PE) valuations, which have proven to be a poor measure of value. We believe the return on capital should be at least 20%. Apart from that, the profit growth rate should be above 10%. Many companies in India meet these criteria.
A company with a high return on capital has less debt, and a growing company has a high P/E ratio, but it falls quickly.
India is therefore growing at a faster pace than many countries around the world, and with its staggering Gross Domestic Product (GDP) growth rate, prices are not that high.
What do you think about investment opportunities in the IT sector and banks?
Technology is such a broad field that it must be divided into various segments. For example, Taiwan has a great semiconductor design and software company. Their business is very different from companies that provide business software for enterprises. Different segments must be distinguished.
We don’t like to invest in banks because they tend to be very opaque. It’s hard to understand what’s going on with their business, and I don’t know who they owe how much. For example, in the United States, many banks that had invested in bonds when interest rates were low began to lose heavily on paper as interest rates rose. I’m not saying banks can’t work, but we don’t want to take risks.
Is there a risk of global contagion from the US banking crisis?
Central banks will not allow major banking systems to fail just because they become very unpopular. That’s why the Federal Reserve stepped in, bailed out banks, and saved depositors’ money. Globally, we cannot afford to destroy a major banking system.
The collapse of some banks, the takeover by others, may be allowed, but the government will not allow the complete collapse of the system.
Which sectors or stocks do you think will perform well?
We basically like companies that leverage technology, regardless of field. We have invested in a Turkish blue jeans company that utilizes a lot of technology for internet product sales and production design. For us, this sector is not as important as execution.
