IL&FS crisis a concern for investors abroad: Mobius
Crude may even see a jump to $120. It is quite possible that you may see $100 by the end of this year, says Mobius
Mumbai: The recent crisis at Infrastructure Leasing and Financial Services Ltd (IL&FS) is a concern for investors in overseas markets, says veteran emerging markets investor Mark Mobius. In a phone interview from London, Mobius, 82, founding partner of Mobius Capital Partners Llp, believes the Indian rupee will eventually stabilize around 73 against the dollar. He sees crude touching $100 a barrel by the end of this year, and believes it may rise to $120 later. Edited excerpts:
What is your outlook for Indian stocks now? They have been in a free fall in recent times.
The problem with the infrastructure company (IL&FS)—and the fact that Indian government is bailing it out is a concern for investors in overseas markets. So, they are going to be very cautious. It demonstrates to investors the problem of leverage of some of these companies.
Anybody putting money into India will have to think twice before they do so. That’s the reason why when we look at Indian companies now, we look very, very carefully.
That, along with rising interest rate environment, makes people very cautious. Interest rates are going up in the US; all these countries will have to follow.
Of course, all these things are in very short-term, the longer-term outlook for India remains excellent. There is no doubt about that.
That is the reason why in our new fund, India is going to be a big part of our portfolio.
It could be an opportunity for us, because at the end of the day, we might be able to pick up some very good bargains.
Where do you see rupee stabilizing?
That’s a difficult one. If you see the rupee chart, it is almost vertical. It’s probably not going to continue that way. It is too much too fast. So, 73 is the level, where we should see it stabilizing.
What is your outlook for crude oil prices?
I’ve been looking at $100 (a barrel) since the beginning of this year. It may even see a jump to $120. It is quite possible that you may see $100 by the end of this year.
When do you think earnings growth will return ?
I don’t think we will see them until next year.
What is your view on the US economy, and US markets?
It is terrific. The market is incredibly bullish. There has been a continuous increase in Fed rates; it’s an indication that they really feel safe to be able to raise rates.
How many Fed rate hikes do you see coming up?
Probably, two more hikes by the end of this year.
Where do you see India’s interest rates heading?
I see them heading higher in the short term. There are two: One is increased perception of risk, and two is rising US interest rates. US rates will drive what other countries have to do. I think you will see another 0.5-1% by the end of this year.
Which sectors on which are you upbeat in India?
In spite of all these financial problems, now is the time to be looking at the financial sector, particularly the non-banking financial companies (NBFCs). There may be an opportunity to now gain market share. If you go into really solid companies, they will be able to gain market share on the back of restructuring of the industry. That is one interesting area. We must make sure we opt for companies with very solid balance sheet.
Second, of course, anything that is export-oriented, including export of services.
Which sectors are you avoiding in India?
Anything dependent on oil—that is for sure, and any company that has a weak balance sheet. During a boom, weak balance sheets were not a problem.
It indicated that they are getting very cheap finance.
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