`Indian market expensive'

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But not in a bubble-like territory, says Mark Mobius

Mr Mark Mobius, Managing Director, Templeton Asset Management Company
Mr Mark Mobius, Managing Director, Templeton Asset Management Company

The Templeton Asset Management Company Managing Director, Mark Mobius, says that Indian markets have good momentum but the Indian market is expensive, valuations are stretched and one has to be stock specific now. He further adds that he is bullish on commodities due to rising prices.

Excerpts from CNBC-TV18's exclusive interview with Mark Mobius

How are you looking at India after this phenomenal rally of the last few weeks and months?

We are impressed by the tech sector results. The momentum of the market is good but at we have been saying for a while now, it is getting a little expensive and therefore we have to be careful and choose stocks very cautiously.

You are in the process of launching a BRIC fund, does this mean that you will deploy that money at correction or dips in the market or do you actually find stories in India where you can invest despite being a value investor even at these levels?

Yes, we will certainly invest in India with our BRIC fund. We already have one BRIC fund that is selling in Europe and other parts of the world and that fund is now about $650 million of assets under management. We are investing a good portion of that in India. The largest part of this fund is in Brazil, China and some in Russia and India.

You are launching a fund in US, so could you tell us the kind of appetite there is for India as a market? A lot of foreign brokerages have made a point that India is in a bubble like territory; do you see those signs yet?

I wouldn't say that India is in a bubble-like territory but India is certainly more expensive than many other markets around the world. One has to be careful because the rate at which some of these Indian companies are growing, one can justify a higher price-earnings ratio and the real problem going forward is how to look at this earnings growth numbers. If they can be maintained for the next 4-5 years, then India is quite attractive.

Is technology a space that you are looking at quite carefully now?

We are looking at that sector. Another very interesting sector is commodity. Commodity prices globally are going up and companies that are involved in commodities are interesting. In India of course, with higher oil prices, that presents a problem to oil companies. But when and if the government decides to bite the bullet and raise oil and gasoline prices up to global market levels, then we can see oil companies doing better.

We have seen a tremendous rally in cement and metal sectors, where do you stand on Indian cement and metals stocks?

When I said commodity, I mean things like cement and steel. Globally those two materials are doing very well. Globally, there is a building boom that uses steel and cement. Steel prices corrected recently and now they are coming down to levels that are very sustainable in our view. At these levels, steel companies are doing very well, making good profits and the same thing goes for cement companies.

Do you think India's re-rating can continue upwards because for the last few months?

It all depends on the earnings. If the earnings are sustainable and continue rising at the same pace, then the prices are sustainable. One must remember that the price of a stock rises before the earnings numbers come out, it's anticipated a year or two years in advance of the actual numbers coming out. So the market is a leading indicator and so far it is good that the market is telling us that earnings are sustainable.

Do you expect the allocation to India to remain this high both in the Asian basket and in emerging markets?

Allocations will continue to come into the Indian market. They will not be as high as China, but it will still be high.

(This article was published in the Business Line print edition dated April 19, 2006)
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