Indian stocks are “still somewhat overpriced” after the 16 percent decline in the country’s benchmark equity index this year, according to Templeton Asset Management’s Mark Mobius.
“Generally speaking, it’s difficult to find cheap stocks in India,” Mobius, who oversees about $50 billion as executive chairman of Templeton’s emerging markets group, said today in an interview broadcast on Bloomberg UTV. “Better earnings will make Indian stocks more attractive.”
The BSE India Sensitive Index has dropped the most in Asia this year on concern a slowdown in the U.S. and Europe’s debt crisis may erode company profits already threatened by the most aggressive interest-rate increases among major Asian economies. Companies on the gauge trade at 14.4 times estimated profits, compared with 10.1 times for the MSCI Emerging Markets Index.
“We are probably nearing the end of the tightening cycle,” said Mobius. Policy makers are “beginning to be concerned about growth,” he said. The Reserve Bank of India is due to announce its policy review on Sept. 16, two days after the government releases its monthly inflation data.
The central bank has raised borrowing costs 11 times since the start of last year to damp living costs that are climbing the fastest among the BRICS nations of Brazil, Russia, India, China and South Africa. Earnings for some 47 percent of Sensex companies missed analysts’ estimates in the quarter ended June, compared with about 33 percent in the previous three months.
India’s benchmark wholesale-price inflation in July rose 9.22 percent from a year ago, staying at more than 9 percent for an eighth straight month, government data show. Still, the latest reading was the lowest in eight months.
“Inflation at this stage is beginning to moderate but the concern going forward will be growth,” said Mobius.
India’s $1.7 trillion economy expanded 7.7 percent in the three months ended June from a year earlier, the slowest pace of expansion in six quarters. Slowing growth may prompt the Reserve Bank to pause raising rates, the Press Trust cited Finance Minister Pranab Mukherjee as saying on Sept. 5.
“India should be growing at 7 or 8 percent in order to achieve the kind of living-standard increases that you need in the population,” Mobius said. India’s population is estimated by the International Monetary Fund to be 1.3 billion.
Overseas funds withdrew a net $2.1 billion from Indian stocks last month, the most since October 2008, according to data from the nation’s market regulator. That triggered an 8.4 percent drop in the Sensex, making it the gauge’s worst August in at least a decade, according to Bloomberg data.
Foreign flows “will change if valuations come down or if you see earnings moving up, which I think will happen given the high-growth rate in the country,” said Mobius.
India’s $1.3 trillion stock market, Asia’s fourth-biggest, is influenced by foreign fund flows. Inflows from abroad surged to a record $29.4 billion in 2010, making the Sensex the best performer among the world’s top 10 markets. The largest-ever outflow in 2008 led the biggest annual slump of 52 percent.
“We are, of course, still continuing to buy in selective areas,” said Mobius. India’s information technology industry offers “great advantages” and “there really is no match in the world now for that industry when you compare it to the Indian companies,” he said, without naming any.
Templeton is “looking at” the nation’s state-owned and private-sector lenders, Mobius said.
The money manager favors energy companies globally, while being “very careful” in adding shares of telecom companies as they are “under pressure” due to lower average revenue and income per user, and the investments needed to keep up with new technologies, said Mobius.
“Look at our funds globally, energy is right at the top of the list in terms of sectors,” he said.
Equities around the world rallied yesterday as investors speculated that President Obama will introduce a $300 billion plan to create more jobs in a speech to Congress today. Obama will propose a stimulus plan in the Republican-controlled House chamber as job growth stalls and the unemployment rate hovers above 9 percent in the world’s largest economy.
“I’m sure he is going to come out with a very aggressive program of government spending on infrastructure, and this will help the unemployment situation temporarily,” said Mobius.
A global stocks rout wiped out more than $8 trillion in value in the four weeks through Aug. 19 on signs Europe’s debt crisis will spread and as concern mounted that two rounds of government asset purchases and record-low interest rates fail to entrench an economic recovery in the U.S. The Stoxx Europe 600 Index tumbled 10 percent in August, the biggest monthly decline since October 2008.
Markets in Europe have already discounted most of the bad news, Mobius said. “May be by the end of the year we will move forward to a better market condition in Europe.”
Politicians will work out a program that will solve their problems with Greece, Portugal, Spain and Ireland, Mobius said. “They will reach some consensus on how to move forward.”