File image of Mark Mobius (Source: CNBC)
Veteran emerging market investor Mark Mobius is jittery about the spillover effects of the ongoing bear market in the cryptocurrency market on other asset classes like equities.
Speaking to business news channel CNBC-TV18 on February 15, Mobius, founder at Mobius Capital Partners, outlined his rationale for remaining bullish on Indian stocks, how long he expects the current correction in global equities to last, and the kind of companies he will invest in current market conditions.
Following are the major highlights from the interview:
On cryptocurrencies
Problem is that if cryptocurrencies go down then other markets will go down as well.
Millions feel rich because of the money they made in crypto so when cryptocurrencies go down, they feel less rich and may bail out of other markets. That’s another reason why we are seeing heightened volatility across asset classes.
On market Conditions
We are in really rough water now. We probably can see another 10 percent correction in the market, but of course, this is all guesswork.
I am assuming that we are still in a long-term bull market. What I will like to do is wait and keep some cash so that when the big bear market comes you can accumulate.
The main thing right now is to be invested in companies with good earnings prospects. We are now climbing a wall of worry.
Even in this environment, there are companies that are doing very well and that’s the kind of thing we should focus on.
On US Fed rate hikes
What is happening with Russia and Ukraine I think is a sideshow to the whole interest rate environment.
The Fed is a little bit late in raising the interest rate. With inflation in the US at 7 percent, then the Fed may have to raise interest rates even higher than that to give people positive real interest.
I don’t think Fed rate hikes have been fully priced in yet and you may see more volatility and downside going ahead.
On India
I am still an India bull. We are in an environment here where growth is so good that we have to be in India.
Over 50 percent of foreign investors in India are depending on ETFs and that means they are following the index. So when they see the emerging market index underperform developed markets index they are unhappy.
We have to focus on those companies that can weather this storm, that is, companies with low debt, good EPS growth, and good return on capital. We like companies that have strong pricing power and higher return on capital.
On new-age tech companies
Many of the so-called tech companies have done badly because they are not earning any money, and these companies will suffer in a higher interest rate environment.
India, overall, has done well in the software arena but there are still companies that will continue to do well in this space.
India is going to become a big producer of computer hardware whether that be in semiconductors, PCs, or smartphones.
On LIC IPO
It’s a wonderful thing that the government is selling more shares in state-owned enterprises. It invigorates the equity markets and makes India important at a global level as its market capitalisation goes up because of more listings.
I wish India was as big as China now because then the EM index won’t have gone down. I hope the government will list more such government companies going ahead.
The fact that LIC is so big, I would say half of the large foreign investors will be forced to buy it just because it will be part of major indices later.
I think probably because of the recent downturn in the market, the reception to the IPO may not be as big as probably it would have been but it will still be considerable.
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