Speaking to CNBC-TV18, Mobius identified real estate as one of the most exciting sectors in India.
The rising demand for affordable housing among middle- and lower-income groups is creating significant opportunities. With the country’s population expanding, urbanisation accelerating, and government policies favouring homeownership, the real estate sector stands to gain momentum. Mobius believes that “the demand for housing in India will continue to soar,” positioning it as a critical long-term growth driver.
Additionally, Mobius pointed to infrastructure spending, which is on an upward trajectory, spurring demand in related sectors like metals and automobiles. “Infrastructure spending is on the upbeat. Therefore, metals and infrastructure-related sectors are good areas to invest in,” he added.
Pharmaceuticals also remains a top area of interest for him, with India being the world’s largest exporter in this field.
While India has historically been a service-driven economy, Mobius pointed to a growing focus on products, specifically semiconductor. “I’m very bullish on semiconductors in India, but this takes time to develop,” Mobius explained. India, already a global software powerhouse, is now positioning itself to become a significant player in hardware, including semiconductors. However, Mobius stressed the importance of government reforms to ease import restrictions, which are vital for the industry’s growth. He noted that Prime Minister Modi’s efforts to open the import market could unlock the sector’s potential.
Transcript of the interview, lightly edited for style
Q: Recently the Fed has cut rates, a lot of stimulus has come in the Chinese economy as well. So, do you think this is the time to look at China and China could outperform Indian markets?
Mobius: In the last few days, China has outperformed the Indian market. But I think this is going to be temporary. There will be a pullback. Nevertheless, it’s a very, very positive situation, not only for China but for all emerging markets. Why? Because, China represents such a big part of the index, of the emerging markets index. So China is now up tremendously, and that drags the emerging markets index as well because India is such a big part of the index. Now, what happens? That helps all emerging markets, including India, because 50% of the money going into emerging markets is index money.
So when the index goes up a lot of people pile in, which is why you’re going to see more and more investors coming to India as well as China.
Q: The China outperformance helps all emerging markets in terms of the fund inflows into emerging markets. But what about China per se? You’re saying that this up move perhaps is a bit tactical. You’re still sceptical about whether there are more legs to go, why is that?
Mobius: Simply because it has to be made clear to entrepreneurs, the big entrepreneurs, in China that the government is behind them and will not interfere with their businesses.
Under Xi Jinping up to now, the big entrepreneurs have really been under pressure, and many of them have been leaving, or at least not participating in the market. Now, Xi has been saying he wants to help entrepreneurs, particularly small entrepreneurs. That’s a very, very good sign. Politically, it’s a sign that the situation is changing. He’s beginning to change his stance, and that would be positive for the market.
So maybe what we’ve seen now is maybe a little bit too much on the upside, there’ll be a correction, but I think we’re now probably in a new bull market for China.
Q: So, do we need more on both fronts, fiscal and monetary stimulus in China now to look at a more defined rally in the Chinese markets?
Mobius: Yes, I think you’re going to see more activity in China. As I said, there’ll be corrections along the way, but I think we’re now starting a new bull market.
Q: India’s already in a bull market. All signs appear that India’s bull market continues, and now you’ve got China with one, too. So how would you compare the two?
Mobius: China is larger than the Indian market, but India’s now catching up. They’re beginning to change the indices to favour India more and more, a heavier weighting for India. And that means 50% or more of all money going into these emerging markets is index money. So when India takes a bigger share of the index, more and more money comes into India. So I think the fact that China’s on a bull market is very positive for India and all other emerging markets.
Q: What are the other triggers for Indian markets now? Because we are already seeing valuations at highs across most of the sectors. What would the next trigger be for Indian markets? Even earnings, they were very tepid in quarter one. The expectation is 15%-18% for FY25 for Nifty. What is making you positive on the Indian markets?
Mobius: What’s positive is a long-term picture. There’s no question that India is on a growth trajectory and is doing very well economically. The problem facing India, as SEBI has pointed out recently, is derivatives have become too big. There are too many people gambling on derivatives, and that could put a damper on the market. So we have to watch what measures SEBI is going to take in terms of the derivatives. When that happens, you’ll probably see a temporary downturn in the market.
Nevertheless, we are now on a long-term bull market for India, and I see the Sensex going up to 1,00,000.
Q: By when do you expect that mark of 1,00,000 on the Sensex?
Mobius: Probably by the end of the year, provided that the measures taken by SEBI do not put a big damper on the market. That’s something that we have to watch.
Q: In your assessment, even if you do have measures, adverse measures, it will cause only a temporary downturn, right? It’s not something which can puncture this long term bull market in India?
Mobius: That’s right. The bull market is there and will continue, because India is on a growth trajectory which cannot be stopped. We’re in a tremendous period of India’s history that has not been seen before.
Q: Any fresh ideas in terms of individual stocks when it comes to India and your investments?
Mobius: I can’t give you individual stocks, but I would say the sectors that are probably most interesting now is real estate. The demand for housing in India will continue to soar, and you’re going to see more and more demand for middle and lower-income people to have good housing. So that is a very important sector.
The other is metals and automobiles. Again, infrastructure spending is on the upbeat. More and more infrastructure you will see. And so therefore metals is a good area. The other area would be infrastructure related to metals. As you see, infrastructure is growing like great guns. And, of course, the need for more and more infrastructure in India is tremendous. And then don’t forget pharmaceuticals. I would say India, being the largest exporter of pharmaceuticals, will continue to be doing very well.
Q: India has been a service economy for a long time, but now we are focusing on products as well. Semiconductor is a big theme. Do you like something in that space, the allied sectors that could benefit from that and the opportunities there?
Mobius: I’m very bullish on semiconductors in India, but this takes time to develop. India is a big exporter of software, but eventually, it’ll become a big exporter of computer hardware, which includes chips and semiconductors. But that takes time to build. Hopefully, the measures taken by the government to free up the import market will be very important because to produce this hardware, you need to import components, equipment, etc. That means you’ve got to free up the import market. That is beginning to take place. Prime Minister Modi is starting to loosen up on these controls and that means you can build a very vibrant semiconductor market.
Q: The big event of the Fed rate cut and the possibility of more in this calendar year itself. Do you think apart from emerging markets, there are other markets which are looking interesting to you that tend to benefit from the developing space?
Mobius: There are other markets, but it’s very, very selective. The US market is doing very well. One of the reasons why there are so many interesting companies in the US is because they are benefiting from the surge of emerging markets development and growth. So I would say, selectively, you could look at the US market, but the emphasis should be on those companies that have exposure to India, to China, and to other emerging markets, either in terms of supplying these markets or buying from those markets. So it’s really a mixed picture for the US market, but you can’t ignore the US market, it’s so huge.
Q: If you had $100 of a fresh investment to make, how would you divide it in terms of the US markets, in emerging markets and within emerging markets? Since China is now playing catch-up, would you look to realign the weightages?
Mobius: I would say at least 50% in India, then 25% in China and Taiwan. Taiwan is very much benefiting from the surge in growth in China, so you have to include Taiwan. And then another 25% divided between Vietnam, Turkey, Brazil, and then Korea and Thailand. Those would be the breakdowns.
Again, notice I haven’t put anything into the US because I believe now is the time for you to be in emerging markets rather than the US market.
Q: A Citi note said that FIIs have historically been sellers of Indian equities in the month after a US rate cut cycle begins. What is the FII view now according to you? We did see that big flow coming in September in terms of FII flows, but that has not been very consistent in Indian markets. Do you think we’ll continue to see these flows? How are FIIs viewing India now?
Mobius: You can see more FIIs coming into India. Many of the FIIs have been going into derivatives, so you’re going to have a lot of very short-term money in India for that purpose. But generally speaking, because of the index, as I mentioned, the heavier weighting of India and the index, and the fact that the index is going up on the back of China moving up, will be very positive for India, and you’ll see more flows into India from the foreign investors.
Q: How concerned should we be about the valuations? Because Indian markets, despite very high valuations, have continued to outperform and soar. So is there really a big consideration now for Indian markets when it comes to fresh investments?
Mobius: Many people measure valuations on the basis of PE and price-earnings ratio. And yes, of course, if you look at the price-earnings ratio, it’s very high in historical terms. However, what people forget is the E of the P. You have the price and the E, there’s earnings. With earnings moving up at such a fast pace, the market looks not overvalued because of that big move. So you have to look forward. A lot of people, of course, look back and say the PE looks high, but they forget that the market is moving at such a pace, and the growth in the country is so great that the future PEs are actually coming down.
Q: The other asset class which has been doing really well is gold. Is it still the time to look at this particular commodity? How much can one put into gold at these levels?
Mobius: I think it’s a very good idea to have gold, maybe 10% of your portfolio, I think gold is very important to have. One of the reasons why gold prices are moving up is because of Indian buying with per capita income moving up in India. Of course, there’s going to be more money going into gold because Indians traditionally love gold, like to have gold and consider gold a currency.
Q: You listed out many sectors which look interesting to you, real estate, affordable housing, infrastructure, etc. You skipped out banks, and banks are the largest chunk of where the FII money is parked in India. One argument which has been made for a very long time now is that Indian markets are at all-time high valuations, but the relative valuation of banks is still attractive because banks are nowhere close to the historically high valuations it’s enjoyed in the past. So why have you not added banks to your list of sectors which you like in India?
Mobius: In that list, I would add financials. I’ve given you three sectors, the fourth one would be financials, yes. That’s a good possibility.
Generally speaking, I’m not excited about banks because they are not very transparent, and it is very difficult to know what kind of loans they have on their books and what could go bad. So you have to be cautious with banks. If you can, look at the loan book. Very often, that’s not available. But yes, banks would be a sector to look at.
Q: I was looking at the fund holdings and Persistent Systems is one of them that you have in your fund, that is the Emerging Markets Fund. How do you look at the entire IT space? And in the IT space, do you like the large caps or the mid-caps right now?
Mobius: I love technology. I like to be in technology, whether it be software or hardware. But as I mentioned, the sectors that I quoted previously tend to be faster moving at this stage of the game. And I think that’s where you want to be. That doesn’t mean Persistent is not a good stock to hold, and we will continue to hold. But generally speaking, we’re better off in the sectors I mentioned: real estate, metals and infrastructure.
Q: Increasingly a lot of experts we speak to are sounding cautious now. They’re saying that the run-up has just been too much, too soon, too excessive. In fact, one of the fund managers today said that it’s time for fund managers to be risk managers. So while, yes, India’s long-term bull market is structurally intact, just over the next 12 to 18 months, would you be a bit cautious, given where we are? And outside of the SEBI action on derivatives, are there any risks lurking on the horizon?
Mobius: That is the key risk. As I mentioned, if you have SEBI coming out with regulations to limit exposure to derivatives, then you could have a downturn in the market because there’s a tremendous amount of derivative activity in the market, and that would have a big impact. I think the advice of fund managers to look at risk is very, very sound and very timely. It’s a good time to consider that. And I’ve always said that, despite the long-term bull market that you see in India, there will be corrections along the way, and a correction could be 5%, 10% or 15%. That’s part of the activity of markets generally around the world. So expect that, but be ready to buy in again when the market comes down because there will be opportunities to buy cheaper stocks.
Q: Anything that you’ve bought into, or you have your eye on waiting for the markets to fall? We spoke earlier, you said you like Tips Industries. Is there anything new that you are finding interesting in Indian markets, apart from the spaces or themes that you spoke about?
Mobius: I’m very interested in the whole semiconductor area. And I noticed there’s been more and more activity in that sector. Prime Minister Modi has recently inaugurated, I think, three major investments in semiconductors. And a company like Micron has come into India with a billion plus dollars in investment. Those sectors are going to be very, very interesting, and we have to keep an eye on them.
Q: Have you been investing in the primary market? We’ve had an IPO boom in India. Some are saying perhaps it’s not a boom, maybe it’s heading towards a bubble. What have you made of the IPO action? And have you been participating?
Mobius: When you have such a bullish market, obviously, it’s a great opportunity for people to list their stocks because you can get a good price, a high price. In my view, it’s not a good idea to pile into these IPOs unless you are very, very certain about their earnings growth. And for many of these IPOs, their earnings growth is questionable at best. So I think you have to be very, very careful in a bull market to buy IPOs.
Q: Would you say the same for new-age companies? Would you buy into something like a Swiggy, Hyundai, those are the two big names that we are watching out for now.
Mobius: Not yet. I would wait. Usually, what I like to do is let an IPO go to the market, let it get some experience in the market in terms of the buying and selling that takes place after the IPO, and when things settle down, then that’s the time to buy.
Q: What are you reading now, and what is your next destination for traveling, 112 counting in terms of countries visited? What’s on your radar?
Mobius: India is on my radar. I would like to get back to India. I took a month and a half last year in India and I want to take a longer trip to really see all parts of the country. It’s an incredible country with so many states and so many different situations and cultures. We have to see more and more of India going forward.
