India's small-caps may gain more: Mobius

Marc Mobius said the firm has made India a top pick in emerging markets and invested $2 billion in its equities

A three-year rally for Indian small-cap stocks may extend further on growing signs interest rates are headed down in the world's fastest-growing economy, Mark Mobius said.

India is forecast to grow as much as 7.2 per cent this year as Prime Minister Narendra Modi's plans to boost infrastructure and open up industries such as railways and defense to foreign investment have also bolstered consumer spending. Mobius, the executive chairman of Templeton Emerging Markets Group, said the company has made the South Asian country a top pick in emerging markets and invested as much as $2 billion in its equities.

"India is in a very sweet spot," Mobius said at a Bloomberg event in Mumbai on Friday. "There is so much variety and so much opportunity, particularly in the small- and medium-cap stocks."

Mobius, 80, who is closely associated with raising the status of emerging markets as a place for investment, said Modi's plans to overhaul the country's economy are one of the most exciting things about India. While the plan to introduce a nationwide sales tax by April 1 may not be fully implemented in 2017, it's a step in the right direction, Mobius said. Templeton has $600 million of its total Indian investment in small companies, he said in an interview in June.

Small-caps outperform
Investor demand has been especially strong for small-cap stocks in recent years as they beat every other major Indian asset class. The S&P BSE SmallCap index has jumped 149 per cent since Modi was named the prime ministerial candidate of India's Bharatiya Janata Party in September 2013, compared with a 51 per cent gain for the large-cap S&P BSE Sensex and a 12.5 per cent return on local government bonds. India's growth prospects don't come cheap. The small-cap index has risen 13.5 per cent this year to an all-time high, almost double the gains in the MSCI Emerging Markets Small-Cap Index. The Indian index traded for 2.1 times net assets last month, nearing the ratio of 2.2 that signified the start of a brief bear market in August 2015. Pricey valuations don't deter Mobius.

Bloomberg