There’s historical shift towards India as China is moving towards a Maoist type of environment: Mark Mobius

“I believe we are seeing a sea change in the world given that India and China – the largest countries in the world in terms of population, were moving into a historical shift towards India which is very significant,” says Mark Mobius of Mobius Capital Partners

India is where the outperformance is Mark, you should be in India!
I just emailed our analysts. I told them, we are underweight in India. Put more in India.

Are you underweight in India and if you are, why?
We are not actually underweight. If you look at the index, we are probably overweight from an index point of view but we are not investing according to the index. However, we have got quite a lot . We are diversified; we are in Taiwan, Vietnam and many other countries including here. We got one stock in South Africa. We are definitely bullish on India. there’s no question about that.

In the current environment when growth is precious and there are very few pockets of sustainable and visible growth, one of them is India. Do you think it makes sense to have a diversified portfolio?
Yes, it does because when you have a very bullish environment as you have now in India, the problem is the valuations go up and so the terrific bargains that you normally would want to fight for are not so plentiful. Whereas in countries which are sort of bombed out like in Turkey or South Africa, things are down a lot and there is pessimism. Brazil will be another example, So more opportunities and way more bargains.

India for the longest time has competed with China both in terms of perception and also in terms of flows. Given that there is a change of policy, change of economic agenda and the Covid problem, do you think money will continue to move out of China and benefit a market like India?
If you look at what has happened with the party Congress and the general change, there is a tremendous change taking place in China where the idea of an open society is not taking place to a degree that we expected. It will be moving more towards a Maoist type of environment. The outlook for business is not going to be as good as it was in the past when market voices were given a free rein.

But in India the opposite is taking place. The government is opening up the market more, they are welcoming foreign investors and giving incentives to people to come in. I believe we are seeing a sea change in the world given that India and China – the largest countries in the world in terms of population, were moving into a historical shift towards India which is very significant.

What do you expect to hear from the Fed? Do you expect them to indicate 75 bps rate hike and a lot more or 75 and no more?
I think they will continue to raise rates. There is a big question mark on the amount but there’s no question that inflation is persistently high and they have to do something about that despite the fact that oil prices have come down. We have had a very high inflation rate and the playbook of the central banks is always to raise rates higher than the inflationary CPI.

I expect inflation rates to continue at high levels and of course interest rates to come up. The problem that the Fed has and let us face it that the Fed is political in many ways is the upcoming election and they do not want to dampen the economy that would hurt the current administration. So they probably will want to be very cautious about raising rates but after the election. things will change I believe.

When you are investing into stocks, how much weightage do you give to Fed, interest rates and macro?
We look at it of course, we take into consideration and of course the stocks that we hold or buy will depend on how much debt they have because with rising rates, we have a real problem with debt. If a country is going to continue to raise rates then that means the companies holding debt are going to be in trouble. We try to focus on companies with no debt or very little debt and in that environment, these companies will do better than their competitors who have high debt.

You own three stocks in India and you have been owning these three stocks for three years now. What is stopping you from making it four?
We continue to look, we are searching for good opportunities and that search will continue.

Let us talk about Persistent Systems. You have owned this stock for a while. It has done rather well but given that what is happening to the US tech stocks and how there is a fear of recession, is it time now to hunker down your exposure to IT and especially Persistent Systems?
The changing environment globally is going to help tech companies going forward, particularly software companies and companies that are offering software packages that will help efficiency and decrease costs in companies. Persistent is beautifully placed to play that role and of course people will began to look more closely at what their costs are in software and Persistent is able to compete pretty well in that space.

In other words lower costs and high grade software for companies in the mid range which is their target.

Is there a reason why you do not own TCS or Infosys or other popular names from the IT space because three years ago you invested in a midcap IT stock?
Yes, our philosophy is not to hold index stocks. We want companies that are not in the index. So that leaves out these big names that you have mentioned because they are index stocks.

Specific reason why you do not want to invest in index stocks? Is that a philosophy which you apply to only Indian index or that is a global philosophy?
It is a global philosophy that we have and the reason why we do that is first of all, our clients usually have all the big names because they are investing in ETFs or index funds and so I am not adding any value by giving him the same names number one.

Number two, these big index stocks have lots of research available in other worlds. A lot of information is there for everyone else to see and so there is no advantage to us in terms of research.

Number three, the smaller you are, possibly the bigger you can get. In other words. it is better to start with something small that has a potential become big and of course we look forward to the day that the index stocks includes some of the stocks we now own. In other words, we would like to see these stocks that we now have eventually become part of the index and of course that will be a chance for us to sell.

The second stock you own is APL Apollo and again it has been a fantastic company but given where commodity prices are moving, how do you see a pipe manufacturer/a company which is dependent on commodity prices really navigate this volatility?
Commodity prices are actually levelling off and even coming down. Now it is not a dramatic change but I think we are at the point now where these commodity prices are not going to have a significant impact on people like APL Apollo. In fact, it will probably have a positive impact because the prices are leveling off or even going down.

So I am not too worried about that. In addition, APL Apollo has been able to increase prices in line with the increase in raw material cost but of course raw materials are just one small part of the total cost of the kind of things they produce.

I know you own three stocks and I remember two names, can you help me out with the third name?
We are now involved in looking at new stocks in India that have more of an orientation towards consumer goods and that sort of thing. So we are in the process of selling down what we have in one area but adding in the other. I cannot add more than that but that is generally the philosophy and the strategy.

Which is the name you are selling down? I am taking the liberty of being slightly stock specific, we are meeting after Diwali, it is a new year.
I want to celebrate Diwali by not revealing the name.