Tax cuts a good move, but make it easier for foreigners to invest: Mark Mobius
- My top three EM preference now are China, India and Brazil.
- It is a good sign that Modi is wants to make India more attractive for investors.
- India will be on par with other Asian countries in corporate tax.
Will the corporate tax cut lead to any meaningful change in the outlook for India?
It is a wonderful move and its very great that Modi has done that. It is going to give a boost to companies in India and also companies that want to invest in India. It is a very good sign that he is really intent on making India more and more attractive for investors, not only overseas investors but domestic investors as well. Its a great move. This will definitely attract capital but more importantly I believe it will boost the economic growth in the country because with more investments, you are going to get more growth. So its a very good move that will help the economy and push growth to higher levels.
Where does India stand within emerging markets in terms of preference for you?
The top three now are China, India and Brazil. India is coming up faster. Now with this change, we probably will try to look more closely at India to see what other opportunities there are.
There is a concern in the market that fiscal deficit level will cross the comfort levels as a result of the corporate tax cut.
The government still has more room for spending but more importantly if they can encourage the private sector to take up some of the slack, that would be very good for the country generally and also for the budget. This is not going to be a big burden. Another thing I believe they have got to do is that issuing bonds on the international markets because with interest rates the way they are, it is a big opportunity for India to issue a bond and have long-term capital so that they can really go after infrastructure spending. Another aspect that has got to be looked at very carefully is capital gains tax. There is a need for review of capital gains particularly for foreign investors.
Do you see foreign flows into Indian equity market reviving as a result of this move?
It takes time because people then have to evaluate what it means and how much more attractive India becomes. The good news is that now India will be on par with other Asian countries. That will help very much. It takes time for the money to come in because long-term plans have to be revised and so forth and so on.
What more should the government do to improve sentiment?
The other measure would be to make investment easier. The bureaucratic system, make it easier for people to put money into the country from overseas. Right now it is quite bureaucratic, it takes quite a long time. For example, it took us six months in order to get money into the country, much too long. They have got to find some way where of course they have got to whet and be cautious about hot money and the rest of that, but they could cut that timing shorter and thereby encourage more money coming in.
In the US when the tax rate was cut, companies resorted to buybacks. Do you think that could be the case for India as well going forward?
I hope not. I hope they will use that money to pay dividends and also for capital investment. The ideal situation is where half of it goes into some dividends for investors and half goes into capital investments.
What are your preferred investment ideas within India?
Now we would look at some of the industrial companies, companies that are building equipment for infrastructure use. Another one would be software companies, companies that are involved in software technology and any company that is in the consumer space. Those would be the two areas that we would be interested in. There are lot of companies that have good value. We look at things like return on capital, dividend yield and debt to equity. There are a number of companies that would meet the criteria.
Do you see the RBI cutting rates further in the upcoming policy meeting in October?
I am expecting cuts but I don't know how big they will be. India has got to catch up with the rest of the world in terms of interest rate cuts. As you know, everybody in the world, central banks all over the world are cutting and it is important for India to keep up.
What is your outlook for oil prices?
As an importer India is impacted but at the end of the day the supply globally is still up there. I believe that we will see the supply continuing to rise and also prices to come back down again. We are talking maybe in the high 50s, 60s level. There has been a spike now because of what happened in Saudi Arabia but it will be probably a narrow range.
What's your take on the US Fed's commentary recently? They gave mixed signals on future rate cuts.
They will continue to cut because they are probably quite concerned. You must remember it becomes a competitive situation where the US has got to keep up with other countries, otherwise we are going to see the US dollar getting much too strong.
What is your view on the US-China trade tensions?
It is a new normal. Going forward I believe it would be very difficult for the US and China to come together on issues such as technology transfer, that sort of thinking. The trade issue is one of the many issues that we are looking at.