Mumbai: Emerging markets (emerging markets) guru Mark Mobius is upbeat on Indian shares, topping the list in the model portfolio of his latest venture Mobius Capital Partners. He sees 15% return for Indian markets until the end of 2018. Mobius, 81, started Mobius Capital Partners after retiring from Franklin Templeton earlier this year. The firm plans to raise around few billion dollars, and intends to focus on emerging and frontier market companies compliant with environmental, social and governance (ESG) criteria. In a phone interview from London, he said the fund doesn’t intend to invest in the upcoming Saudi Aramco initial public offering (IPO) as it stands right now. He also believes oil may rise to $100 per barrel in 2018. Edited excerpts:

Which emerging markets/frontier markets look best placed at this point of time and why? Where does India stand in that order?

India is really at the top of our list. We have a model portfolio, and India has the highest weightage in that one, followed by China. After that, we are looking at Korea, Russia, Brazil.

India has around 20% weightage in the model portfolio. Valuations are looking stretched for some of the large cap companies in India but if we go down the list, many of the companies look very good, not only in terms of their valuation but also in terms of their potential valuation because of growing earnings.

I think the Indian stock market may gain 15% up to the end of 2018, driven by earnings growth.

We also like Indian companies because of the incredible progress they are making on the technological front. There is so much of innovation happening in India, and though China is much more technologically advanced, the pace of innovation is slowing down. In India, we are starting from a lower base, and the scope is much higher.

Has Mobius Capital Partners already started operations? What are the expansion plans ahead?

We have started operations but we have not launched our fund yet. We are waiting for the official approval, and it should happen probably next month.

I would like to open an office in Hong Kong, and may be Mumbai too, down the road.

How much funds do you plan to raise?

It would be a few billion dollars. The emphasis will be on governance. We want to help companies improve their corporate governance. The best way to have policies that improve the environment and continue to circle growth, is to have companies that have very good corporate governance

You plan to focus on ESG stocks. With a lot of noise around some Indian private banks, apart from the state-run banks on alleged corporate governance issues, where do financial stocks stand in this selection?

I think we are looking at the situation that given the problems, we are now finding opportunity in smaller consumer finance companies in India. We like the smaller institutions that are taking advantages of the improvement in the fintech area.

Apart from financial stocks too, we are facing a lot of questions on corporate governance in India. What are your thoughts?

There is no question there is a lot of work to be done in the corporate governance arena in India. This includes not only the state-run companies, but also the private companies. India is not alone, this is true globally. One of the reasons we are focused on governance is precisely this, there is so much work to be done.

Which sectors are you upbeat on in India?

Some industrials that are related to construction. We like some of the IT companies, the up and coming ones with new and innovative products.

What are your thoughts on the once-defensive bet—pharma sector in India ?

I think the pharma sector is still somewhat expensive. Many of them have hit the regulatory wall.

What are your views on US Federal Reserve’s interest rate trajectory for rest of 2018?

I believe interest rates in the US will continue to rise. Its not only a matter of unwinding the money flow they had until now, but it is also about servicing the elderly people, retirees’ bank accounts where they are not earning anything right now.

I see four or five more hikes in 2018. You must remember US economy is now on a roll. Unemployment is at its lowest in a very long time. There are job openings. It will be very easy for the central bank to bring up interest rates to a reasonable level.

Do you plan to invest in the Saudi Aramco IPO when it launches?

At this stage, the way it is now, we would not want to participate, unless there is a big change in policy.

Walmart acquired Flipkart in India recently. What are your thoughts on the acquisition and do you see more such buyouts happening in India’s e-commerce space?

It underlines our positive attitude towards consumers in India. Walmart sees India as a very, very important market for them. Secondly, it underlines the fact that they appreciate the importance of internet retailing in the Indian market.

I think there will be more such buyouts, if they are allowed.

How do you view Narendra Modi government’s performance in last four years?

As you would know, we all had great hopes on reforms from the government, and many of these hopes were fulfilled. There were a few missteps though, such as the cashless society idea. However, the efforts that he (Prime Minister Narendra Modi) has taken have been terrific.

I would rate Modi government at probably 8 on 10 on performance so far.

Where do you see oil prices for rest of 2018?

I believe oil is headed to $100 a barrel, and it may happen this year. Once we get near there, we may see new supply, particularly from America.

The sanctions imposed by Trump government will cut off supply to great extent. That will push oil up.

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