Infra Cos Too Opaque to Attract Investments: Mobius

Infra Cos Too Opaque to Attract Investments: Mobius
Emerging markets investment expert and Franklin Templeton's Emerging Markets Group chairman Mark Mobius today said his company does not have any direct holdings in any infrastructure firms in the country due to the opacity of their operations.

"They (infrastructure companies in the country) are too opaque in their operations and they need to change that to attract investors," Mobius, who has spent nearly four decades studying and working in the emerging markets, told reporters here.

Franklin Templeton's Emerging Markets Group managing director and chief investment officer for India Chetan Sehgal joined him saying, "the infra companies have to improve their transparency and generate better revenues to lure investors."

Analysts have been pointing out that even the best of the infra players are picking up bad projects due to stiff competition in the space, following the government push to this key growth driver. Competition has forced companies to quote very low making most of projects economically unviable.

The government is planning a whopping USD one trillion investment in key infra areas like highways, airports, seaports and railheads over the next five years, which is double the amount it spent in the 11th Plan period.

The Budget 2011-12 has earmarked as much as 46 percent of the overall planned expenditure, running in to Rs 2.14 trillion, for the infra sector, besides making a slew of enabling measures to attract foreign funds into the sector such as allowing USD 20 billion more investments by FIIS into mutual funds.

It's also vigorously working on developing a corporate debt market as the banks alone would not be able to meet this huge amount of money planned for investing in this sector.

Mobius parried a query on his year-end target for the Sensex, saying "the main index is not the whole market."

"We need to be careful about the movements of the main index, as it is not the whole market. So we need to look at the market in a holistic manner, as most of the time mid-caps and small caps outperform the main market," the investor said.

Saying that the EMs, which have over 32 percent weighting in the global market capitalisation, will continue to outperform the developed markets for a longer time, he said, "since the past few years, the EMs have been performing very, very well. Significantly, the bear phase in the EMs have been much shorter than those in the developed markets, and at the same time, the bull phase has been very long too."

Buttressing his positive outlook for the EMs, he pointed out that while the debt-GDP ratio in the EMs has been heading south continuously for quite some time now, the same in the developed markets has been on a steep rise.

On the domestic market, Mobius said, the recent fall will be short-lived and he has not advised his clients to sell out Indian equities.

"We are continuously buying the Indian equities," he said, adding the domestic market is fairly valued now. The Sensex is valued a tad over 18 times the PE multiples now after last week's 5.5 percent rally of the market barometer.

At the end of February, of the USD 16 billion Templeton Asian Growth Fund of Mobius', as much as 19.4 percent was allocated to India, which is the fund's third-heaviest weighting after China and Thailand.

He also said in the long-term he would choose India over China because of the unique demographic advantage, the democracy, strong legal framework among others.

Mobius warned that the rising unemployment levels, frequent rise in food inflation and water scarcity, which he listed as his top three concerns for India, may impact the growth momentum of the country if went unchecked.

However, he said, inflation across the globe will continue to head northward driven by rising oil demand and the resultant higher prices of the fossil fuel as well as that of commodities, especially metals.

When asked whether the Japan tragedy and the political crises in the Middle East have dampened the risk appetite of investors, Mobius, who oversees around USD 52 billion of assets as chairman of Franklin Templeton's Emerging Markets Group, which is part of US asset manager Franklin Resources, answered in the negative.

Whether he sees the US ending its second quantitative easing (QE2) anytime soon on the back of the faster than expected recovery of the US economy, he said, "I don't think so. I don't see the QE2 ending anytime soon. I also don't see as and when it ends, it impacting the EMs."
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