Mumbai: India’s amendment of the tax treaty with Mauritius is negative for the markets, according to Mark Mobius, executive chairman, Templeton Emerging Markets Group, Franklin Templeton Investments. In a phone interview from Kuala Lumpur, Mobius said the government should aim to straighten out the entire tax regime. To be sure, while foreign investors have opposed the treaty change, domestic investors have seen the change as positive in the long run.
India is in the second spot, after China, in Mobius’s emerging markets preference list, as he remains upbeat on the prospects of Asia’s third-largest economy. However, he warns the negative interest rate experiments carried out by various world economies could be “disastrous".
He believes the worst is over for the commodities market, and that they are set to gradually recover from here. Edited excerpts:
What is your take on the amendment in India-Mauritius tax treaty?
The government has to determine what the objective of the tax is. Is it to raise money or to restrict investments? In the current regime, there are two things—it’s not raising much money and it is restricting investments. They need to determine what the objective is: Do they want to stop foreign investments, and want to restrict them? If so, then fine, that tax is excellent. If they want to encourage investments, and at the same time they want to raise money for their treasury, then it calls (for) a turnover tax, which is paid by everyone—whether it is a foreign or local.
So, is the move negative for the markets?
By how much do you think the flows in the country will be impacted, in percentage terms?
Oh (it is) very difficult to say. I wouldn’t want to bet or guess.
What is your view on the Indian equity market in the near to medium term?
I am quite positive on the Indian markets for local investors, but not so much for foreign investors with this tax regime. The economic picture is excellent, the growth is excellent, the management of central bank is excellent. The reforms programme, even though it has been delayed, is ongoing and hopefully it will be implemented as we go forward. So, there are a lot of positive things you can say for India. If they can solve this issue of taxation, then it will be very, very positive.
What is your outlook for the Indian economy over the next one year? Is it picking pace?
India’s growth rate is already very high. If you look at the growth rate in India and compare it with other countries, it is very, very good, and is very high. There are many other countries, much smaller than India, that are not achieving the kind of growth you see in India today.
How do you view and rank India in comparison with its other emerging market and regional peers, in terms of equity investments?
In terms of equity investments, it is really good, because you have a cross-section of industries; you have high-tech industries. You also got basic industries like oil & gas. You’ve got a real good selection of industries. So, I would say that is quite positive.
In emerging markets, India would stand one rank below China, which ranks first.
Is the worst over for the commodity markets across the globe?
I believe it is. I believe we are now in a recovery phase. Of course, there would be setbacks from time to time but, generally speaking, we are in a very good position with regards to commodities. It won’t be rapid, it won’t be overnight but it would be very good.
In light of that, do you think a lot of commodity-producing countries such as Brazil and Russia would take a chunk of flows away from India in some way?
They are going to start attracting (flows) again because some of the commodity companies will see recovery in the light of high commodity prices. The problem with Russia though is sanctions. Many of us cannot put as much money as we would like to into Russia because of these sanctions, and that’s a big drawback. Hopefully, these sanctions will be eliminated going forward, and it is a possibility, and then it would be in good shape.
What is your take on the bullion market?
Along with other commodity markets, bullion is having a recovery. In fact, I might say, gold—bullion is a leading indicator of the rest of the commodity markets.
How do you view the negative rate experiment by certain economies?
It is pretty disastrous. Negative rates are not healthy. This discourages savings. It also raises the risk of market selling because people began to speculate on unviable investments. I would say negative rates are quite a bad variable, and you have to be very, very careful.
Do you see interest rates easing further in India this year? If yes, by how much?
I think you will see another half a percentage point drop from here, provided that inflation remains benign.
The Reserve Bank of India (RBI) has asked bank for a clean-up drive of their books by the end of March 2017. How do you view this move? Can this help address the issue of bad loans?
It is a very good move. It shows they are getting very responsible. It shows they are getting pre-emptive of any possible problem down the road. It is something which should be applauded.
How are Indian state-owned banks placed versus other emerging markets state-owned banks?
In view of these moves by the central bank, I would say, generally speaking, the banks in India are really much better and in better shape.
Would you want to see Raghuram Rajan continuing as RBI governor?
Yes, he has been excellent. He has been following the right policies. He has been very good. I would say that what is needed now is reforms so that inflation comes down.
What do you think of reforms performance by the government? What is it that you would like to see, which has not happened yet?
(I would like to see) faster reforms and more forceful reforms. The tax issue got to be straightened out. They got to really sit down and straighten out the entire tax regime.
How would you rate the Narendra Modi government’s performance on a scale of 1-10, one being the lowest and 10 being the highest on performance? Have they met your expectations.
Six. My expectations are high. Of course, I always knew that things will not go as fast as we would like. We have to be patient.
Which are the sectors that you really like in the Indian market currently?
I like technology sector, as it is doing very well globally, and with weaker currency, it should continue doing well. I like oil & gas, because I believe oil and gas will recover. Of course, India has got very good refining facilities too. I like some consumer stocks as well.
Which sectors would you avoid in India?
I wouldn’t avoid any particular sector except those which depend heavily on government regulations.