India's economy is in a "sweet spot" in this time of global meltdown due to its diplomatic trade relations with Russia, according to Mark Mobius.
"India has not been much impacted by the inflation conditions in the U.S., and some Indian companies are doing well despite panic in the market," the founder of Mobius Capital Partners LLP told BQ Prime's Niraj Shah in an interview.
Given the current downward trend, global markets will not bounce back in a hurry, Mobius said in the 'Navigating Through Uncertainty' series. However, India's comparatively stable foothold is due to its Russia ties, which enable the nation to import crude at a fairly reasonable price as compared to the U.S.
According to him, recession seems imminent in the U.S. because of the "Fed's pullback on money supply" against shrinking cryptocurrencies, and the "pressure on energy and food" in the backdrop of the Russia-Ukraine conflict. These actions are increasing commodity prices and affecting the common man's purchasing power, which is symbolic of an approaching recession, he said.
In comparison to China, the U.S. is still the world's largest economy and the biggest importer across the globe. Therefore, when recession spirals in the U.S., it will impact emerging economies in other parts of the world, he said.
The signs of recession are visible with the Nasdaq plunging 30%, S&P falling 21% and Bitcoin declining by 70%, according to Mobius. He expects further downside. "We are heading into the 30% area that places us in a bear market by definition."
Key Themes
Rather than opting for the price-to-earnings ratio to track growth and potential of a company, Mobius takes into account the return on capital or "yield on capital".
Indian companies have been producing considerable yield on capital, he said. Moreover, a company that has 20-30% return on capital and no debt has great potential in India as the country is a "growing market".
Mobius sees potential in Indian software companies, given their domestic and international expansion, especially after the government took the initiative to digitise the economy, he said.
According to him, India is an evolving space for the manufacturing sector–more so, after tech companies like Apple Inc. have begun to diversify from China.
Apart from that, garments and textiles as well as consumer goods, including toys and kitchen appliances, are other sectors that hold potential in the export business, he said.
Watch the full conversation here:
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