India earnings picture great, markets ignoring third wave: Mark Mobius
Mark Mobius, Founder and Partner, Mobius Capital Partners, is bullish on India, especially mid and small-cap companies. The emerging markets veteran says technology as a broad space is attractive despite current IT valuations but there will be many disappointments for investors wide-eyed about internet stocks.
Indian companies’ earning picture looks great and will look even rosier at the end of this year and next year too, he said in an interaction with business TV channel ET Now.
Talking about global market undercurrents for emerging markets, Mobius said there is a concern about the Chinese index falling. In contrast, the Indian index is going up. This has led to an interesting phenomenon as when investors think of emerging markets, they tend to think of China and if the Chinese market is going down, then they think emerging markets are in trouble.
But he pointed out that is not the case with India and the economy is going from strength to strength. “The bottom line is that many of these companies in India and around the world are doing very well. Money supply in America alone is up by 30% in one year. That means there is a lot of money looking for a home,” according to Mobius.
India is on a growth path and one must look at the investment opportunity not in terms of this year, next year, five years but from a 10, 15 or 20-year period, he said.
“People like us who look at companies’ earnings first are investing in places like India. We see great growth, strong companies and we are sticking to those companies,” according to Mobius, who has four mid-cap companies—APLApollo, Persistent Systems, Metropolis Healthcare and Polycab—inhis local portfolio.
Mobius said corporate earnings were depressed during the Covid-19 situation and those numbers are now popping up.
“We are going to see good earnings reports coming out and, of course, those earnings reports will be at the end of this year and next year,” he said, adding that the greatest opportunities are in the small and midcap segments.
What third wave?
According to Mobius, the markets are ignoring the possibility of a third wave of Covid-19.
“They are now looking at an incredible recovery of many economies and they are now pricing in the growth that they see this year and next year,” he said attributing it to the earnings of companies.
“There is a recovery psychology that is now taking place. In general, it is a very optimistic outlook,” Mobius added.
IT, dotcom 2.0
Mobius believes Indian IT can still generate double-digit returns and continue to outperform despite the current valuations as the internet and technology are now becoming more important globally.
He signalled that as India moves from the current size to a $5 trillion economy, the next big thing will be related to memory and the internet, the cloud and related fields.
He said consumer technology is a growth area. However, he added he did not participate in Zomato’sinitial public offering and even though he is bullish on consumer-tech, he would avoid IPOs as they tend to be priced high.
Referring to the gravy train of tech IPOs, Mobius said, “I think there would probably be a lot of disappointment because yes, one out of a 100 will do very well but many others will not do very well.”
Mobius also talked about why banks are underperforming. “It is because people are very unsure about the balance sheets of banks given the incredible list of bad loans that have persisted,” he said.
“People are very uncertain about future earnings and how many write offs they will have to make,” he said, adding that the opaqueness doesn’t make it a good buying opportunity.