Higher-for-longer interest rates and bond yields will be a headwind for companies that are reliant on outside financing, though markets will come to terms with it, according to veteran emerging markets investor Mark Mobius.
"It (higher-for-longer rates) will be a headwind for companies that cannot generate their own finance. Companies that have to borrow, need outside financing are going to be in trouble," the founder of Mobius Capital Partners told BQ Prime's Niraj Shah.
He highlighted this as a reason why he prefers investments in companies that have a high return on capital.
Mobius also said that such a phenomena will bifurcate markets into two categories—companies with high debt/high finance cost and those that are not. "Markets will come to terms with it. There will be losers and winners."
He also welcomed India's inclusion in the JPMorgan Bond Index and said that the country will have a more important and bigger role in bond markets.
Sensex At 1,00,000 In Five Years
On the current bout in equity markets worldwide, Mobius said risk assets will always have headwinds and investors have to sail through it.
He expressed optimism in Indian markets doing well as compared with EM peers. "I believe the Sensex will go to 1,00,000 in the next five years, (with) that in mind, it's good to invest."
To this end, Mobius said it is important for India to remove barriers for easier entry of overseas funds. "I would like to open a personal account in India, to bring money in and then out. That's not possible right now," he said.
The Securities and Exchange Board of India earlier proposed additional disclosure requirements for foreign portfolio investors meeting certain objective criteria that are set to come into effect on Nov. 1.
Mobius also sees merit in investing in small companies, especially those who are adapting to new technologies. He expects Indian IT companies to outperform as demand for artificial intelligence and other frontier technologies goes up.
India's focus on building a semiconductor industry will also add value and will play a key role in supply chains, he said.
Watch the whole conversation here:
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