Mark Mobius, executive chairman of Templeton Emerging Markets Group, expects around 10% returns from Indian equity markets in 2016. He believes interest rates in India will likely fall further as inflation remains below rates. While the US Federal Reserve faces a dilemma over raising rates, any increase would be small and uncertainty over it is impacting emerging markets more than an actual hike. Mobius also does not think there will be major outflows from India as foreign investors are underweight in emerging markets overall. He is positive on technology, consumer sectors, and affordable housing in India.

1. I Don't Think There Will Be
Outflows from India

2. Contd…
It's reasonable to expect around 10% returns from equity markets in 2016, said Mark
Mobius, executive chairman, Templeton Emerging Markets Group, Franklin Templeton
Investments. In an interview with Biswajit Baruah, Mobius said he likes technology,
affordable housing and consumer sectors. He spoke about various issues including
monetary policy in the US and India, foreign investors' position in India and commodity
prices. Edited excerpts:
What is your reading of the RBI's comments after the policy meeting on Tuesday?
I think there are good chances of interest rates coming down further, because if you look at
the difference between interest rates and inflation, you will find that inflation numbers are
significantly below interest rates.If the inflation continues to remain where it is, rates are
likely to fall further. If you look at the inflation basket of India, it's probably heavyweight on
food. If you look at the previous administration, you will find that there were subsidies on
rice and wheat. Now with subsidies being taken away from the farmers, they may grow
more vegetables which may bring inflation lower giving further room for the RBI to
consider monetary policy action.

3. Contd…
All eyes are on the US Federal Reserve's policy meeting. What will Fed signal after the
meeting?
There is real dilemma because Federal Reserve Chair Janet Yellen has said that she is going
to do something about interest rates, whereas the Federal Reserve's policy has always
been to preempt inflation. But when I look at numbers, then one has to question -where is
the inflation? I am sure many of the Fed governors may be asking why we are going for an
interest rate hike because there is no inflation and employment situation is also not great
either. So, there is going to be a big dilemma on interest rates.However, if the Fed
considers increasing rates it's going to be a small one.
What will be the impact on emerging markets if Fed goes ahead with the rate hike?
To play safe on the markets, I would say buy US dollars and get out of the emerging
markets, and this is one of the major reasons why there has been shrinkage of money in
the emerging markets. It's not about interest rate increase that is hurting markets, it's the
uncertainty impacting equities, and once it's over, people will get back to their lives. After
the event, people will think that why they are so heavily overweight on the US markets and
that's the time they will start considering fast growing economies of the world.

4. Contd…
Does foreign investors' overweight position on India make it risky?
I don't think there will be outflows from India. You have to remember that people
who are overweight India are underweight emerging markets.What you have to
look at is -will people come to emerging markets in January? If that happens, India
will attract flows despite being in overweight position.
But, the general feeling is that valuations are lofty...
If you are sitting in London, New York or Tokyo and running a global business, India
has to figure very big -if not bigger than China --because you are starting from
lower base.So in that sense, you have to be in India somewhere or other. However,
if you are an equity investor, you have severe constraints because the number of
large companies are less here, the market cap is less, while valuations of the
companies you like are relatively high. It will be very important for more companies
to get listed as part of reform programme, while more state-owned companies
must also get privatised.

5. Contd…
What kind of returns are you expecting from emerging markets like India in 2016?
I think it's reasonable to expect around 10% returns from stock markets.
What are your top picks for 2016?
What are your top picks for 2016?
There is transformation in the global economy due to use of internet and the
spread of smartphones. People can do things in a second today what it took days
earlier to accomplish. In India, I like technology because that's growing. I also like
consumer sector and affordable housing segment.
Will the downturn in China affect the region?
Everyone knew that China will not continue to grow at 10%, but I don't think India
will get impacted because India will make up for the slack in demand though the
scale may be much smaller now.

6. Contd…
Is the worst for commodities over and should investors bet for a
recovery in 2016?
In terms of commodity prices, there was a phase in China's growth
where infrastructure spending was skyrocketing as they were building
roads and bridges. China is still spending but not at the rate they were
doing before. In commodities market, it's not about supply or demand,
it's about speculation. Commodity prices have no particular link with
supply or demand its more about speculation.

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