Stock markets have been extremely volatile in the backdrop of COVID-19, and the expected impact of the pandemic and the nationwide lockdown on the economy. Ratings agency ICRA has said India’s economy will contract 5 per cent in the year ending March 2021.
However, Mark Mobius, emerging markets fund manager and founder of Mobius Capital Partners remains extremely positive on India, which he feels will bounce back by the end of the year. He also believes India has a good chance to attract many companies that are looking to diversify their operations beyond China. Speaking in a conference from Germany, Mobius shared his views on the stock markets, gold, sectors he would bet on in times of the crisis among other things.
Stocks in bargain territory
The reaction of the markets was quite sudden, within a few months most markets had gone down by 20-50 per cent. There has been a pull-back because people are beginning to realise that it is not as bad as they thought. But, we still are in bargain market territory. For that reason, we have been buying stocks in line with the opportunities that we see. India, of course, figures highly in our buying spree, because India is a huge market, like China, and we believe that India has the opportunity to really pull back rapidly.
Be ready to go in when things look bad. Of course, what you are investing in is very important. Does the company have a strong balance-sheet, are the earnings of the company moving up and are they expected to continue to move up, is the company paying dividends and treating shareholders properly in that respect, is the management ethical, do they observe good corporate governance, these are all very critical questions you have to ask.
On India’s recovery post-Covid
India can bounce back quickly. A lot of the projections are that Indian economy will shrink by as much as 5 per cent this year. I don’t think that is the case. I think India will bounce back very quickly, by the end of this year and 2021 will be a good growth year.
Opportunities for India
More and more buyers of Chinese goods are thinking of diversifying their base of operations and diversifying their sources of raw materials. India stands a good chance to pick up some of that business, provided, of course, that the conditions are suitable and the governments institute reforms, particularly with regards to labour regulation and in a number of other areas, which foreign investors find difficult to operate within.
India is already a big source of software outsourcing. Now, India has the opportunity to move into manufacturing outsourcing, whether it be smartphones or telecom equipment, robotics, etc. All of these things can be manufactured in India, because India has the advantage like China, of a large workforce and relatively low cost labour. So, I am quite optimistic about India and that’s the reason it is an important part of our portfolio.
Bankruptcies to rise, big companies can grow bigger
There will be many bankruptcies as a result of this crisis. Many companies will default, many companies will go bankrupt. That provides an opportunity. Companies with an excellent balance sheet, no debt and lots of cash, should be looking for acquisitions, so that when this crisis is over, they will have larger market share and a stronger positioning in the economy.
Businesses that will benefit
The best companies or those with the greatest future are those who have adopted the latest technology, ensuring that they have an internet strategy, a digitisation strategy, regardless of what business they are in.
Gold to shine bright
I recommended last year that people have at least a 10 per cent portfolio in gold. Over the longer term, gold prices will increase. Simply because the amount of currency in circulation is increasing at a rapid rate. So, basically you are having a debasement of currencies and whenever you have that, gold tends to be strong.
Mobius’s country and sectoral picks
If you look at our portfolio, you will see the top countries are China, India, Turkey, Brazil, South Africa, South Korea. In terms of sectors, top sectors are pharma and healthcare, education, internet-related companies and manufacturing related to infrastructure.