Russia-Ukraine crisis: See more downside in equity mkts, says Mark Mobius

The markets have slipped sharply from their recent highs because of the Russian invasion of Ukraine. MARK MOBIUS, founder, Mobius Capital Partners, tells Puneet Wadhwa in an interview that in the current situation, it will be a good idea to remain 10-15 per cent in cash and wait for opportunities to invest at lower levels. Edited excerpts:

What is your interpretation of the recent geopolitical situation and its impact on the global financial markets?
It will be a long drawn geopolitical conflict – more like a guerrilla war in the Ukraine. It does not look like [Russian President Vladimir] Putin and the Ukrainians will give up easily. The international community, especially the Europeans, are in support of Ukrainians. As a result, the stock markets of other countries will look more attractive. Markets outside Europe such as the US, Brazil, South Africa, China, and Taiwan will do well as they will be considered safe havens.

What about India?

Indian markets, too, will do well as they’re somewhat isolated from the crisis. The only problem facing markets around the world is the fear of higher interest rates. But this is only a temporary issue. As we look at history, interest rates do not really have much impact on the stock markets. They, however, do have an impact on the fixed income market.

But Indian markets face headwinds of their own...
Yes, there may be volatility in the short term, but should do very well in the long term. That’s because there are a number of productive and profitable companies. The government, too, is working to modernise the economy. So, all the technology being deployed right now will make India an attractive destination.

Will the global central banks continue with money printing till the geopolitical situation is fully under control?
The central banks have realised their mistake of lowering interest rates and keeping them at such a low level. They will look to catch up now. That said, the crisis will cause them to go slow on hiking rates.

What returns can one expect from the Indian markets in the next one year?
This year (2022) will not be a repeat of the last one. Return from Indian markets could be in the range of 5-10 per cent this year depending on how the macro/geopolitical situation develops.

In a rising inflation scenario, do you see corporate earnings growth expectations getting trimmed?
Yes, that’s correct. But one must also remember that last year’s base was big and some companies will come off the euphoria. However, the performance will be polarised. If the Indian economy will grow at 6-7 per cent, one can expect a growth of 5-10 per cent in earnings for most companies.

What has your investment strategy been in the last few months?
We have not invested anywhere. If stock prices come off, we have cash reserves to deploy in India and across the globe.

Which sectors or stocks are you looking to buy?

We like technology, medical testing, industrials, and home building companies.

Foreign investors have been selling Indian equities since October. What’s the key indicator they’ll be looking for to start pumping money back into Indian equities?
The key indicator will be the currency market action. One needs to look at how the Indian rupee plays out against the US dollar and other currencies. If it continues to hover around current levels, there is nothing to worry about.

Do you think there is enough appetite among investors for the LIC IPO?
Most large investors across the globe are index investors and are not buying individual stocks. Th­ey’re also buying exchange-traded funds (ETFs). Once the LIC stock enters the index, these investors will be forced to buy LIC, which will be a large part of the index.

Retail investors have been a force to be reckoned with in India over the past few months. What’s your advice to them?
In the current situation, it will be a good idea to remain 10-15 per cent in cash and wait for opportunities. There may be more downside in equity markets due to the conflict.