Marki Mobius is an emerging markets fund manager and founder of Mobius Capital Partners. Mobius, 82, has been a key figure in developing international policy for emerging markets. Known as the dean of emerging markets, Mobius said the non-performing asset (NPA) numbers in India may be worse than they look but given the situation, there are some good opportunities emerging in the NBFCs and other areas of financial sector. It is important for the Indian government to make it easier for overseas investors to put money into the market, Modius told CNBC-TV18 in an exclusive interview.

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Watch: There are some good opportunities emerging in NBFCs, says Mark Mobius

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The emerging market (EM) currencies have seen some kind of stability in last two to three trading days, would you say worst is over for this pack?

Yes, I believe a lot is behind us because these currencies have been falling dramatically, far beyond what you would expect. So, I would say many of these countries have now begun to stabilise, you might see another 5-10 percent decline but I think we are pretty much near the bottom.

The big worry is higher yields in the US and now the Fed will begin to raise rates – do you think that will hurt the EMs?

There is no question that the higher interest rates in the US, the Fed rising rates is having a tremendous impact but you must remember that a lot of this has been already anticipated by the markets around the world.

Earlier this year, I figured that the US Fed would raise interest rates at least five to six times in one year and we have already seen a number of increases by the Fed. So this has been pretty much taken by the markets. The reason why currencies have weekened so much.

So, do you think there could be further destruction of currencies and equites from EMs?

No, I think there could be continued departure form EMs for a while now until these currencies really stabilise.

Usually, what happens is when currencies go down, markets go down then people say they are losing all the money and let me get out and they continue to exit. Then after a few months, they say maybe there is an opportunity and then they come back.

So, I don’t think we can count on a huge flow in or out. There is going to be a little bit more out but then eventually it will come back in.

Focusing on India now. We saw a vicious liquidity crunch lately. Would you think that non-banking finance companies (NBFCs) are a worry?

Of course, we would worry about them, we know that the bad loans are very numerous in these banks and probably the numbers that we are seeing are not exactly accurate, they are probably worse than it looks.

But given that situation, there are probably some good opportunities in some of these NBFCs and other areas in the financial sector in India, so we are looking at that very carefully. Particularly, because of this prevalence of bad news in the sector.

Would you worry about any domino impact from any of the companies defaulting?

As you know, we had this infrastructure situation where the government had to step in bail the company out, that itself could have been very destabilising if the it had not acted. I think that is the biggest one, I don’t think you are going to see anything bigger than that now and things are probably stabilising.

But I think it is very important for the government to make it easier for investors to put money into the market from overseas. In our case, for example, we want to invest in India but we are going to wait for 3-5 months before we get permission to put money into the market. It is very important for the Modi government to move on, to make things easier for investors.

Would you worry about consumption dropping off if NBFCs don’t lend much for some time now because that is the big concern on the street as well?

You are absolutely right, many of the non-banking institutions were a little bit too aggressive and they are now sitting in incredible bad loans. So, the degree which they will pull back in order to get some liquidity then the consumption will decline.

But if you look at the overall picture in India, the number of people that are borrowing to spend is much less in other parts of the world, at least developed countries like the US. So I don’t think it’s going to be a major problem.

The big problems will come from the large institutions, large borrowers who are in trouble and who represent a lot of bad loans in the banks.

If you can buy, what sectors will attract you in India? if it is not the NBFCs, is it the banks?

We are not focusing on the banks so much, we believe that probably there is going to be done in order to reform the banking sector and wipe out the bad loans and deal with that.

We are particularly interested in the consumer sector. We believe that the consumer sector in India is going through incredible changes – particularly because of what is happening on the internet. So this combination of tradition retail and internet buying will create exciting opportunities.

So, would you buy now or wait for equites and currencies get a bit cheaper?

We would buy now because there are a number of stocks on the list, which we think are very attractive, so we have specific opportunities in India that we like.

Do you think equities and currencies will fall more through the course of the year?

I think the currency could get a little cheaper, it has come down a lot but could get a little cheaper. A lot depends on the degree to which the government can open up the market and bring in more foreign exchange. I think that is going to be very important.

But I think we are near the bottom. As you know, in most of these emerging markets the currencies have come down so much. We have reached near the bottom of the range.

Is politics a worry? Possible political changes when the big elections happen next in March-April?

Of course, if there is a political change there will be some uncertainty. However, a lot will depend on how investors look at the government and the degree to which they believe the government will increase the reform movement.

We have been little disappointed with in the current government in opening up the market. So perhaps a new government can do a better job in opening up the market and introducing more reforms.

Do you believe oil prices can rise more from here?

I believe oil will move up to a $100 per barrel by the end of the year or sometime next year. So we have got to be ready for that. Of course, the dollar has gotten stronger against so many currencies. So in local currency terms, it becomes more expensive. A lot of the efforts to reduce consumption of fuels, of gasoline, of oil fuels and increase other fuels is going to be very important going forward, but as I said the key for India is to encourage more foreign investment to come into the country.

India’s current account deficit was a worry? Has that been allayed by depreciation?

Of course, it is a big worry, the deficit is something that foreign investors look at very carefully, to ascertain whether the currency will get weaker and more importantly, there will be currency controls. That would be putting a big dampener in foreign investment.

In this respect, I believe India could benefit from the trade war between the US and China because China may not be able to export a number of things to the US and perhaps India will be able to replace China in that regard. This is something the Indian government should look at carefully.

In that context, I have to emphasize, they have to reduce the regulatory framework and make it much easier for investors to come in, establish factories and export. It is going to be life-blood of the country going forward.

What about the RBI recent policy, they did not hike rates, does that worry you?

It does worry me, there is no question about that. In fact, in the past, I had recommended that they should not move on interest rates. In fact, lower interest rates. I know the prevailing wisdom in the central banks is that in order to reduce inflation, you got to raise interest rates but I do not entirely agree with that in every case. I think that is something that the central banks of all these countries should look at carefully.

Among foreigners there was a worry that the RBI didn't hike rates enough to shore up the rupee?

I believe that currency is all about confidence, it is not so much about interest rates. For example, if you look at the euro now, if you put money into European bank in euro you will get point some percent, far less than even one percent. In some cases, you will get nothing and in fact, earlier this year you were actually paying the bank to keep the money – now why is that because people are confident of the euro.

So, I believe interest rate is just one factor and sometimes it’s pretty irrelevant.

So what is your pecking order in EMs right now?

Believe it or not India is right at the top of the list despite the fact that we cannot invest right now. Brazil is up there, we are very interested in what is happening in Turkey now, maybe an opportunity going forward. So there are a tremendous number of opportunities open for us.

Developed markets have also dropped, will they stabilise any time soon? The last few days have bit of turmoil for them?

I believe the US market has been in a bull run for a long time and a correction is long overdue. Earlier this year, I expected the US market would probably correct or come down or maybe even enter a little bear market.

If you look at the top index stocks in America, you would see these are internet stocks dependent upon big flows of money to acquire other companies that often are not making any money and with higher interest rates, people are beginning to look at earnings of these companies and saying, I am not going to put money into a company that is not earning anything.

So interest rates definitely have had a big impact.

Finally, since you have observed the world over four decades -- will this tariff war slow down the EMs in particular and the global economy in general?

There will be a slight slowdown but not so much because of trade war but because in case the of China, the Chinese market has gone so big, you cannot expect 9-10 percent growth, we will be happy with 5-6 percent growth in China.

Looking at the total global situation the China weightage is very high. So if you take just an average mean of all the growth rates around the world, I don’t think you are going to see much of a decline. I think you are going to see some good growth. Because in some countries that are undergoing incredible reforms such as Brazil, Argentina, and we expect these countries to come back up and start growing again.

First Published:Oct 15, 2018 9:17 PM IST