The 87-year-old investor, known as an India bull in global markets, expects Sensex to grow at a pace of 14-15% over the next 10 years.
In this exclusive chat with ETMarkets, Mobius talks about his new book ‘The Book of Wealth’ and how to invest in Indian markets following the election shocker. Edited excerpts:
In the ‘Book of Wealth’, you have talked about how emotion is the potion for investors. This is clearly visible at this stage in the election season when the herd mentality is very common. So how should one keep calm when the market is behaving insanely on both sides?
That is a very-very important question because the herd is very prevalent in almost every circumstance in life, whether it be politics, market or shopping. And the way to avoid being caught up with the herd is by being very strong and sitting back and saying wait a minute, do I want to do this? Do I want to move in this direction? And when it comes to investing, you always have to keep in mind that the best way to get the best value is to do what other people are not doing. So, there is an old saying, the best time to buy is when others are selling at a very unhappy period. And the best time to sell is when everyone is greedily buying. So, you have got to keep those principles in mind. Otherwise, you will get caught up with the herd.
In your book, you have also mentioned about how Rakesh Jhunjhunwala could not enjoy his wealth because of health issues. Would you agree that traders die early and investors, like you, live a very long life and a happy life?
Well, it depends on the trader. Some traders enjoy the trading and they get enjoyment out of it, but they have to balance their trading life with health and it is very important. So, unfortunately, many traders do it 24×7. In other words, they do not take any time for anything else and that is when they get ill and their health declines.
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And in India, this is becoming a typical problem because of the surge in derivative trading among retail investors in particular. How do you see this trend and the impact on health?
Yes, it can be very dangerous if people get involved with trading on a day-by-day basis. Particularly for individuals, as I point out in my book, it is very important to be a longer-term investor. In other words, take a longer-term view, buy a very good company and stay with it as long as the company remains profitable and is growing. Do not be swayed by market ups and downs, rumours, what your friends and neighbours are doing. You have got to be independent is probably the best way to put it.
You also write about the importance of frugality in your book. Now, in a growing country like India, where the middle class has so many aspirations and we are competing against each other, don’t you think it is tougher for the Gen Z to be frugal?
It is very tough because you have got a bombardment from the hype machine. I call it the hype machine, where you have got your cell phone all the time, looking at what people are buying and what are they selling, you are following certain people and you see what they are buying and selling and you want to do the same. So, you have got to be resistant to this kind of enticement, very-very important, and very difficult I might add. But it is critical if you want to become wealthy, because if you are spending all your money on frivolous things that really have no long-term value, then you are not going to become wealthy.
Talking about the impact of elections, how your calculations for India changed, given the fact that PM Modi is coming back but with a thinner majority?
Yes, it is unfortunate. And, of course, we have to re-evaluate the direction of the country, because my general impression has been that the Congress party has been the party of bureaucracy and of slower decision making. Now, that may be wrong in that assessment. Hopefully, the Congress party has learned a lot from what Modi has been doing and maybe will continue the policies that Modi has embraced. But that gives me some concern if Modi’s reforms will be hindered by the fact that they have a lesser majority in Lok Sabha and they, of course, have the Congress Party against them. So, it is a concern. And by the way that pessimism is reflected in the market. I think a lot of other investors feel that way as well. But from a longer-term point of view, India is still an incredible place and, in fact, it might be a good time to be looking at the market with this downturn to find some investment bargains.
Do you think the market bottomed out on election results day?
Yes, it looks like. It may have bottomed out. But I think you have got to be cautious about that. It remains to be seen how the political situation turns out and what kind of policies will be followed by the new conglomerate of powers that take place.
Prime Minister Narendra Modi has owned the success of PSUs like no other Prime Minister has ever done. Now do you think PSUs would be the worst hit? We have already seen some of the corrections playing out.
Yes, I think that they will be hit and not only those but others will be hit as well as a result of the change in policies. You have seen some of the big infrastructure companies come down pretty dramatically because there is a fear that maybe infrastructure will be slowing down, the construction of roads, bridges, etc, will slow down, so that is unfortunate, but it remains to be seen. I think we have to wait to see exactly what the Congress party along with other parties decide to do and how they decide to go forward.
Which other sectors besides PSUs and some of the capex-linked sectors, do you think are going to be the most affected?
Well, I think when you look at the overall situation of the economy in India, the sectors that are going to be doing well in my view will be the software and technology sectors generally. Companies making computer hardware, companies going into the semiconductor area, companies doing software, those companies will not be affected as much. Maybe on the consumer side, you may see some effect, but even there, the economy is growing so fast. Even with all this political upset, those companies will do fairly well.
A lot of trade we are seeing in defensive stocks like FMCG, for example, given the fact that the new government is more likely to be pro-welfare than pro-reform. So, how do you see this trade playing out?
That is a big question because if you are not pro-reform, then you are really going backwards. You are not progressing. So it is very-very important for the Congress party to embrace reform and change, but that remains to be seen. I think they may have learned some lessons as a result of their failures in the past politically and maybe they will change.
Do you fear that FIIs are going to de-rate India in the near term at least?
I do not think so. I think FIIs realise that India is the future. They have already seen that China has problems and they want to diversify away from China. Some of these FIIs who have been badly burned in China, do not even want to go back to China, that is probably a mistake because China is still a viable market. But nevertheless, India is going to benefit from the desire of FIIs to diversify and that is very important.
But at the same time, we have also seen a reversal of this buy India and sell China policy in the last one-and-a-half months.
I think it is a very temporary phenomenon. Maybe some people have talked about that, but the reality is that when companies make decisions to diversify, these decisions are not made easily. In other words, they are thinking of a longer term. So, companies like Apple and Microsoft, make long-term decisions and if they made a decision to do something in India, they will proceed with that decision.
What are the kind of changes in policies that you are anticipating at this stage?
Well, my expectation is that the bureaucracy involved in accepting investments into India will become more streamlined. Up to now, there is a great deal of bureaucracy necessary when you want to come into India to invest and I think that has got to be simplified and made easier. If that is carried out, then there will be a tremendous flow into India by foreign investors.
Earlier, you spoke about some buy-the-dip opportunities. Can you give us some ideas of where you see value emerging after the correction?
Believe it or not, some of the construction and materials (stocks) will recover and do well going forward because India needs infrastructure and they definitely, regardless of what party is in power, will have to move forward on that.
You had earlier said about how Sensex will hit the 1 lakh mark in next five years. So, as things stand now, do you still think that Sensex will hit 1 lakh in the next five years?
Oh, definitely. We are still on that upward trajectory. There will always be corrections, but we are still in that direction. We will hit that. Maybe even before five years. India may be an exception in terms of moving faster.
So, just to sum it up, you are saying that this is just a pause in the bull run, but not the end.
Exactly. We are certainly not at the end of the bull run. See, generally speaking, you can say that if a country is growing at 7%, like India is now growing, the market and earnings of good companies will go up double that, 14-15%. So, you can expect the market index to be rising at that pace over the next 10 years.