That calls for guts. With the capital markets battered by scandals, computer breakdowns, strikes, political uncertainty and sheer confusion, Mobius justifies his treading into markets where most fund managers would fear to tread to Shekhar Ghosh.
Is this visit in keeping with your Indiana Jones of the global markets image, when some of your compatriots would not touch this country with a bargepole at this moment?
I am not denying that the capital market at present is in a mess, but I feel this is the right time to enter the market. There is no doubt that several things need to be improved, but we are thinking long term. Once Templeton starts, it aims to become as Indian a company as Hindustan Lever or Colgate. The present mess may be a boon as this will certainly professionalise the markets out here.
Aren't you apprehensive about the elections and the political situation in the country?
But that could be one reason why this is the time when one should enter the market. Prices are low, and one could pick up some choice stocks. If the fundamentals are good, it's worth a buy in the long term.
The fact is that the shift of the country's economy from a socialist orientation to a market-driven orientation is irreversible. This alone would take care of a lot of apprehensions that currently exist about India's future in the global economy.
One of Templeton's modi operandi is to create what you call a 'country scan' before venturing into a market. What exactly is a country scan and how do you prepare it?
A country scan takes into account all the listed companies, their market capitalisation, their latest price, the historical earnings, expected earnings, book value, etc. The parameters also include price-to-book value ratio. We then identify companies that look undervalued from the country scan and prepare a sheet for each firm which shows 10 years of historical performance and five-year projections. It is then followed by company visits. Then the analyst recommends a good price to buy and sell the stock. These recommendations affect our decision to buy or sell a stock.
We look at stocks first, then look at the country through the eyes of the company and how it is being affected by the macro-political, social and financial situation, not just in that country but in that part of the country.
In which case, India should be at the bottom of your list now.
Yes, India is definitely not one of the favourite markets for fund managers, but I am quite bullish about the country's long-term prospects. Compared to some of the other south Asian markets, the Indian capital market is quite developed. Indonesia doesn't even have a capital market, but we have investments in Indonesian companies. Even Turkey has had problems with its registration of shares and some backroom operations (like the current Reliance controversy).
There is a lot of difference in what outsiders perceive a country to be and what the reality actually is. The perception of China was very positive. So a lot of people were taken aback by the reality out there. Similarly the perception of India at present is much worse than the reality. Of course, the Harshad Mehta and the Reliance episodes have added to the negative perception. But I firmly believe that more the uncertainty, the better it is for us to come into this market. We have a saying at Templeton that if you can see a light at the end of the tunnel, you may have missed the bus. We prefer to grope in the dark for the choicest bargains in stocks.
Is this why Templeton has delayed its arrival in India for so long?
Partly yes. The share registration and settlement of shares which is the heart of the capital market system has been bothering us for a while now. Though we have invested over US $40 million (Rs 125 crore) in the Indian markets, we would have brought in over a billion US dollars if the depository system and other bureaucratic hurdles were slightly more transparent.
Do you own any Reliance shares?
Oh yes. We acquired RIL shares quite recently at Rs 198 a share. At the time we thought it was quite a steal, but now it remains to be seen whether it was a bargain.
Where do you think the Indian capital market is headed?
The current storm brewing in the market is a precursor to a central depository system and more accountability of backroom operations. I foresee investors playing a far more active role in the management of a company. In Hong Kong, where a public company wanted to privatise, we as large investors in the company could block the decision. Similarly, we would have fought the Reliance placement of Rs 1,000 crore with three institutions which led to massive selling by foreign institutional investors.
Normally foreign investors are wary of interfering in the local management decisions. But we see ourselves integrated well enough within the country to play a more active role as investors. Indian companies will have to learn more and more about accountability to shareholders. I also see that the tacit cooperation between the Unit Trust of India (UTI) and the Government is gradually going to diffuse when the UTI will begin functioning purely as a fund manager.
What do you think the Government's role should be in order to encourage investment in the country?
If the Government removed all restrictions except informing the authorities of the inflow and the outflow of money, we ourselves would put in at least 20 per cent of our corpus. (That translates into slightly less than Rs 5,000 crore.) The Government has to realise that equity investors like us are the long-term investors. Those who are putting their money in bonds and securities are actually the short-term investors. We do deserve slightly favoured treatment than the short-term punters.
Thank God there is so much underground money in the Indian system. Slowly but surely, governments all over the world are heading for a low-tax regime. It's a fallacy most governments of the world get influ-enced by. If the Government fixed a low taxation of say 10 per cent on all profits and income, I bet it would collect far more revenues than it presently does. Some countries like Hong Kong have reduced their taxes in order to recover more. Lebanon too has introduced a low-tax regime. I think the next wave of reform all over the world is going to be on tax reforms. And India will be a part of it concurrently.
What I fail to understand is while most agree that the dynamism of the global economy is gradually shifting towards developing countries, especially the Asian economy, still there are opinions—and one that you subscribe to—that emerging markets may become less attractive than those that matured many years ago. Isn't there a contradiction here somewhere?
Well, it is of a short-term nature. All emerging markets have been hit badly by the Mexico crisis. In fact, 1995 has been less attractive for emerging markets. Now, we are in a situation where we see a recovery taking place. I believe, by 1996, you'll see the emerging markets getting out of bed and walking around. They will be cautious but will come up. It won't be like in 1993 when money flowed into the emerging markets like it was going out of fashion. Now they know the risks and will be tentative.
Do you think studying clinical psychology has helped you become market-savvier?
Well, in some ways, yes. It has helped me understand myself better, no doubt. It has also helped me understand the markets, the moods and the crowd psychology slightly better. More importantly, it has helped me become more unemotional about the capital markets. Our decisions are taken with the head not the heart which is how those who have invested with us have made money.