Friday, 6 March 2015

India standout performer among BRIC countries: Mark Mobius, Templeton EM Group

As a foreign investor and a long-term bull on India, how do you see the 3.9% fiscal deficit target tied with an 8-8.5% growth for FY16? Do you see potential improvements on both fronts over the next two years?

Mark Mobius: What was good in this budget was the fact that they are going to increase capital spending. I understand that could be very important, because India needs a lot more transport infrastructure, which should increase productivity throughout the country.The fact that they are reducing subsidies by 9% and more importantly, using direct cash transfers to make it more efficient, is also a very good move. Perhaps most important of all is the reduction in corporate income tax from 30% to 25% over a four-year period. It should increase capital spending in the private sector. So, all of those moves are quite good. They should help in pushing the economy forward.

The world over, central banks are in monetary easing mode. How much of a boost can it give to ailing global growth? Will India stand out with a strong performance due to fiscal support?

Mark Mobius: India really stands out now. We are talking about 7% growth this year, which means India is well up to the Chinese growth rate. It probably has greater potential going forward.
If you compare India to the other BRIC countries like Brazil and Russia, it comes across as really outstanding.

What investment call would you make for India post Budget 2015? Would it call for more allocation, a status quo of profit-booking after a dream 30% plus return over the last 12 months?

Mark Mobius: Usually what we see is the profitability of companies. If we look at 7% GDP increase in the economy, a good increase in profitability for companies should be achievable.

Do you think the government did enough on infra spending? Do you see India being innovative here and will it lure you to invest more into the Indian infra, railway, road, logistics space, etc.?

Mark Mobius: That is one of the things that they have opened the door to. They are also looking at non-budget financing for infrastructure. Hopefully, that would include private sector participation — either in joint projects with the government or by way of some other systems.
That would be a very good way to increase capital spending in infrastructure more rapidly. But of course, it requires much more clarity on the part of government in terms of committing to programmes. It will enable the private sector to make adequate profits on those investments. It has been done elsewhere, and there is no reason why India cannot do it.

Will the rupee hold out post the Budget? What does the fiscal policy mean for rate cuts in India, and how much more cuts do you anticipate?

Mark Mobius: With inflation coming down — and probably it will continue to come down as a result of efficiency gains — there is a good chance that we will see lower and lower rates. It is good for the economy. There is no reason to think that this cannot be achieved in India.Like all other emerging market currencies, the rupee too has weakened over the last few years. But I think that could change if the India economy continues to grow at this pace.

The rating agencies had called for an improvement in income growth and fiscal deficit to review India's investment grade. How much of that matters to an FII such as you? As of now, it does seem that it may take a while before India is upgraded to BBB status. Your take?

Mark Mobius: India can be upgraded pretty quickly if it achieves the kind of growth that we are looking at. More importantly, if the expectation of increase in tax income turns true, it will enable the government to improve its budget picture.
So, yes, I would say India can be upgraded by the rating agencies. 

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