Most FII outflows linked to fixed income market; on a 5-year basis, Indian market still very strong: Mark Mobius

You have gone on record saying that you did not participate in stock sale, the FPO that is, before it was pulled. But has this at a global investor level scared or shooed investors away from India?
What the major investors, the multi-billion dollar investors, end up doing is buying the index. Even if they are trying to be active investors, they are so big that they are forced into companies like Adani. In our case, we do not have to worry about that. We are not billion dollar funds. We have millions of dollars in our funds and we can concentrate on companies that have very little debt. The thing that scared us about the Adani companies, of course, is the debt. So, at the end of the day, those foreign investors who were forced to go into these big market cap stocks got burnt and, of course, they got scared. But at the end of the day, the outlook for India still looks excellent.

Is it fair to say that the exodus that we are seeing with respect to the FII flows will be over and FIIs will be back soon because even before the Adani issue, there was a consistent outflow of FIIs’ money. What explains that? Has it fundamentally changed the view on India with respect to corporate governance issues, etc?
Look at this outflow very carefully. I have not seen the specific numbers, but you have to count equity and debt differently. A lot of that money may be related to the bond market, the fixed income market, not the equity market. So once you have broken out those numbers, my suspicion is that you are going to see the equity market still strong, with not very big flows going out, maybe for a short term. Because of Adani, you see some outflows, but the outflows are probably related to the fixed income market.

For Indian markets in specific, what do you think is going to be the biggest concern or the biggest worrying factor down the line?
The biggest worrying factor would be a departure or slowdown of the transformation of the economy that Modi is trying to institute. It is embedding into the Indian economy technology. I am not just talking about tech companies, but about the economy itself. In other words, having each and every Indian using technology to better their lives, is going to be the productivity driver for the Indian market. At the end of the day, that is what I would be scared about. If people say, no we do not want the technology, we do not want the reforms, then India will be in trouble.

What do you think is the best global tactical trade at the moment with respect to how the dollar is expected to pan out with respect to how rates are likely to be? Globally speaking, which is the market that looks the most attractive to you in terms of commodities, bonds and dollar? Take your pick.
If you look at the currencies, you will see that the US dollar index has gotten weaker and looks like it is going to get weaker and the emerging market currencies have gotten stronger. A number of currencies around the world have gotten much stronger against the US dollar and that means that we have got to look at emerging markets, not only China, not only India, but one has to look at Malaysia, Indonesia, South Africa, Brazil, etc, because many of these markets suffered an incredible decline in their currencies against the US dollar but are now strengthening and getting stronger. So there are lots of money to be made, and of course, the growth story is still very much in place.

In that sense, would you say that the relative attractiveness of India has surely come down, at least in the near term?
Not for me. I am a long-term bull in India. India is going to do very well going forward. You are going to have market fluctuations, you are going to have situations like Adani but the country itself is going to go from strength to strength.

I will not beg to defer there. But, considering your focus has always been on the non-index stocks, what is it that you have done in the current market weakness or volatility as it has hit the mid and the smallcaps even more. Have you spotted new stocks?
Actually, we have not really changed very much of our holdings in India, for that matter the entire portfolio. But we have been adding companies that are in the software area, companies that are using software, using technology for mapping, for health care and those areas. That is the emphasis we are using not only in India, but globally, but particularly in India.

Since you are talking about technology, how is that going to be a big lever for growth in India, as well as the fact that you have technology stocks in your portfolio? Persistent System is one that we know about. Could you explain the rationale and are you also looking at expanding the tech portfolio? There are the likes of , , , etc, as well?
We are expanding the tech portfolio particularly in the software area. By the way, longer term, India is going to be a major producer of hardware, technology hardware, chips and that kind of technology is going to come through India in a big way going forward. I think there will be great opportunities. India will have its own TSMC someday I think.

But talking about manufacturing in India, there is a lot done with respect to policy action as well, the PLI scheme, the production linked incentives, etc. Do you really see India becoming that manufacturing hub? And if yes, what is the best way to play it?
I do think that India will become a manufacturing hub. It is already a major textile manufacturer. But going forward, it is going to be transformed more into technology. Now you already know that iPhones are being assembled in India, but that is the first step. You are going to go back into the actual components, companies making testing of semiconductors, companies actually producing semiconductors, semiconductor foundries like TSMC or Taiwan Semiconductor Manufacturing. A lot of this will come to India and it is going to be very exciting. We got to keep our eyes in that area.

With the Covid advantage over, what makes you still bullish on the diagnostics names? And I know of Metropolis, I do not know if you have exposure to anything else.

Yes, that is the only one we have exposure to in India at this stage. I believe that despite the rundown in that particular stock and some other related stocks, that sector will continue to do well going forward. There, of course, was concern that with the end of Covid, these companies would not do very well but in fact, they continue to expand because the interest in health as a result of Covid has gone up in India and more importantly, per capita incomes going up means that Indians will be able to afford more and more health care and of course need to have more and more testing.