What's Mark Mobius' assessment of the current scenario in global markets? What returns does he expect from the Indian markets?
Watch him in conversation with Muralidhar Swaminathan on 'Profit Insights'. #NDTVProfitLive
Watch him in conversation with Muralidhar Swaminathan on 'Profit Insights'. #NDTVProfitLive
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00:00Welcome to NDTV Profit. The global markets and the Indian markets are witnessing sharp
00:10swings and volatility. This has been triggered by multiple events that have taken place in
00:17the last two to three weeks. To get a sense of what's happening in the global markets
00:22and how will it impact India, we are being joined by Mark Mobius, Chairman, Mobius Emerging
00:28Opportunities Fund. Mark, welcome to NDTV Profit.
00:31Thank you for having me.
00:34Yeah. So my first question is, you know, what is your assessment of the current situation
00:40in the global markets, partly triggered by fears of US recession, partly triggered by
00:45the yen carry trade rewind, and to a limited extent geopolitical issues?
00:52Well, the yen carry trade was sort of the trigger to have a correction in global markets,
00:59particularly the US market. But you must remember, the background to this is that there's a great
01:05deal of uncertainty in the world and particularly in the US as a result of the upcoming election.
01:13As you know, the difference in policies between the Democratic and Republican candidates are
01:20quite wide, the differences are very wide. So that's one of the keys to uncertainty because
01:27nobody knows how this will turn out at the end of the day, and it will have global implications.
01:33But in addition to that, there's the uncertainty about the war in Ukraine, the situation with
01:39China and Taiwan, and the situation in Israel and the Middle East. So you have all of these
01:47certain certainties piling up in the minds of people and investors around the world,
01:54and that creates volatility. So when you have a trigger, like what you've seen in Japan,
02:01with the yen carry trade, that carries over into the market generally. However, if you
02:07look at the correction in the US market, it is not that big. In other words, we're not
02:13into a big bear market at this stage of the game, at least. And if you look at India,
02:19India has performed better than the US market. And that says a lot about the incredible
02:25growth rate of India and the dynamic economy that India now has.
02:32Right. So the impact on India is limited right now. But before we go back to India specifically,
02:38you know, I would like to help our viewers understand what's happening globally,
02:43you know, especially after the Bank of Japan said that they will stop hiking the rates.
02:48There was a rally in all the markets, you know, Asian markets rallied, US markets rallied,
02:53Indian markets rallies. But today morning, we wake up and we find that all the rally has fizzled out.
02:58So my question to you is, how long will this yen carry trade play out? Is it fully done?
03:05Or will it keep coming back because of the interest rate differentials and the currency
03:09rate differentials between the two countries? I think it's pretty much played out simply because
03:17what we saw is leveraging into this trade. The leveraging is what causes the incredible
03:23volatility. Now, the leveraging is now being wound down. It's probably pretty much over by this stage.
03:31So you're not going to see the kind of volatility that we've seen
03:35in the first stages of this deleveraging. So going forward, I believe the markets will move in a
03:42sideways direction rather than a very volatile situation where you have 5-10% moves. This is
03:51not going to happen going forward, at least in the short term. Okay, you'll still see 5-10% move
03:56in the short term. Okay, so I have to now go back to the Indian markets. We just had the RBI
04:02governor talking about the global scenario and telling the country that, look, India is resilient
04:11and we have enough reserves to absorb shocks. What is your view on India being able to control
04:20and absorb the shocks that are triggered in the global markets or any part of the
04:27global market geography? Well, I must say the RBI has done a very good job in regulating the
04:34money supply, regulating the exchange rate, and generally looking at the total economy
04:40in a very wise way. You must remember one of the big problems in America is money supply,
04:47because during the COVID crisis, the Fed increased money supply by 20%, 30%, 40%,
04:55depending on which month you were talking about. And then they made a big, big decline in the
05:01money supply. And money supply is what really drives market, you must remember. Now, in the
05:07case of India, the RBI was not so extreme. During the COVID crisis, they did increase money supply,
05:14but not as much as in the U.S. And therefore, the downturn, the decrease in money supply was
05:20not as dramatic. So you have two situations, one very extreme in the U.S. and one not so extreme
05:28in India. And that says a lot. And of course, if you look at the situation now,
05:34money supply growth in America is down to single digits. And a lot of the money that came in
05:42during COVID has been dried out. It's been used. That's one of the reasons why the market is weak.
05:50That's not the case so much in India. Right. Okay. So the other big global
05:56factor that is playing out or could play out, maybe in the next one month or whenever the Fed
06:03cuts rate, assuming the Fed is going to cut rate from September to say till about January,
06:09how will money move after the Fed cuts rates by say 25, 50, 75 basis points over a period of
06:16three to six months? Will money move out of emerging markets? How will this play out? And
06:22how will you see money shifting to different assets apart from equities? Well, a rate cut
06:29would naturally move money from fixed income into equities under normal circumstances.
06:36However, as I mentioned, the US money supply is not growing at a high rate. And therefore,
06:43there will not be a lot of money going into equities as a result of that. The equity market
06:48will do fine, but it will not be doing as well as it has been doing in the past. Now, here's where
06:54the political situation comes into play. If the Republicans come into power in America,
07:03they will cut taxes. This will have a big, big impact on the markets. There'll be a surge
07:12in investment. In addition, the Republicans will increase production of oil and gas,
07:20which will mean a reduction in the price of oil and a reduction in the inflation rate
07:27in America, which, again, will be very positive with the economy. On the other hand,
07:32if the Democrats come in, it'll be the opposite. You'll have increases in taxes, and you'll have
07:38a much more stronger government spending program, which will generally not be good for the economy.
07:47So these are two different situations. That's the reason why the market in America is so uncertain,
07:52because nobody knows how this will pan out. Right. So till then, it's going to be uncertainty.
07:59But do you think, what will be the approach towards India? Do you think FIS will keep playing,
08:06shuffling money around, buy for 10 days, sell the next 10 days, and wait and watch?
08:15No, I believe India, you must remember, it's a huge country.
08:19And a lot of people seem to think that foreigners drive the markets in India. That's not the case.
08:27The local Indian investor is the one that drives the Indian market. And as you know,
08:34retail investors have become very active in the Indian market. One of the reasons why the
08:40Reserve Bank has told banks that they should attract more and more deposits
08:45is I believe they're afraid that too many retail Indian investors are going into the market and
08:51gambling in the market, which is not good. But nevertheless, Indians are getting richer.
08:58The high growth rate means you've got more and more money in the pockets of Indians
09:04all over India. And that means more deposits and more money going to the stock market.
09:11Okay, yeah, that's a big concern for the banking system. You know, they are unable to raise
09:15deposits to continue doing incremental business that is credit growth. You know, that's a big
09:23issue banks are facing. So therefore, let's assume that you are focusing on India and you want to be
09:30positive on India. Will you put money in banks or will you put money in other sectors?
09:34I would not put money in banks yet because if interest rates come down, they will be
09:41squeezed to some extent. However, over the long term, some of the banks may be attracted.
09:46I would now put money into raw materials, companies that are producing raw materials
09:53for infrastructure, for industry generally. That would be any kind of raw material,
09:59whether it be steel, whether it be oil, whether it be granite, building materials,
10:06anything of that nature, I think will be very attractive to go into at this stage.
10:14Well, that was Mark Mobius. But let's shift focus back to the RBI policy. We are being
10:19joined by Mr. Ashwini Kumar Tiwari, Managing Director at SBI. Mr. Tiwari, thanks for joining
10:25us. Muralidhar Swaminathan here and my colleague Pallavi is also here with me.
10:30My first question to you, sir, is the RBI governor sounded quite hawkish.
10:41Yeah, it's tough to comment on whether he sounded hawkish or otherwise. We don't generally speak on
10:49nuances of his posture or words, etc. We focus more on what he said, actually. So in that sense,
10:55whatever he said, he basically wanted to tell the market that, look, do not seek or do not be
11:02very sure about rate cuts immediately. We will continue to monitor and if the situation
11:07so arises, we will take a look. But it's not imminent. That's how I read it.
11:12Right. So he again, I mean, he said that, look, I mean, we are not going to, you know,
11:20change the stance, which was made very clear. The withdrawal of accommodation continues.
11:25But considering the situation, the banking sector,
11:29do you think that there is a liquidity problem right now?
11:34So overall system liquidity is surplus, as he explained for July. But in terms of
11:40the bank deposit growth, lagging the loan growth, that's something which fell on record
11:46for the last eight to nine quarters. This has been the case that the deposit growth is
11:51behind the loan growth percentage wise, but also sometimes absolute wise. So clearly,
11:56there is a shortfall which is happening. And many of the banks have CD ratios of upwards of 80%.
12:03We are, of course, below 70 at the moment. So therefore, there is a challenge for deposit.
12:08Rates of deposits have gone up, as we all know. Even as we say this, the benchmark rates for the
12:16government, that is the 10-year GSEC, and also the 3 billion T-bill, both have fallen sharply
12:23in the last one or two months. So in that sense, the impact on the deposit rates per se is slightly
12:32different from what is happening already in the overall benchmark rates. So we clearly have a
12:37deposit challenge as we speak. And the government also acknowledged this and said that instead of
12:42relying on, let's say, the non-detail short-term deposits, probably with a leading to the
12:48deposits, the bulk deposits, the bank should focus on the core retail deposits by having
12:52innovative products. So that's something we are already focused on, and all of us are trying to do
12:57that. So which means that in addition to the inflation and the data concerns, which are
13:03coming in the way of a rate cut, in case if and when the rate cut happens, maybe three months or
13:09six months down the line, will it add to the problems of the banking system in terms of raising funds?
13:16So raising funds doesn't necessarily have to be linked to the availability of the rate cut,
13:24because what that will do ultimately is reducing the interest rates in the system.
13:29So the loan rates, which are largely floating, will immediately reprice, but the deposit rates,
13:35which are fixed and which will reprice with a lag as and when the deposits mature,
13:40so there will be a pressure on the margins in the short term for the banking system when that
13:45happens. So cost of deposits and loans will change, not so much the availability of it.
13:51The availability will be changed only from two, three things. One, of course, the most important
13:56that if the markets were to correct in a major manner, then some of this money, which is right
14:00now going to market may come back to the banks, because there is a comparative yield, which is
14:05happening in the markets, which the banking with the bank deposits are not yielding at the moment.
14:09So that would be the real driver. In addition to that, of course, there are other things,
14:14for example, the overall segments of the population and segments of our customers,
14:20which haven't been focused on so much, and we are trying to focus on them now. Those again
14:24are areas where perhaps we can get some more deposits. But it's the comparative markets,
14:28which the government pointed out is the most important short term factor.
14:32All right, sir. Hi, this is Pallavi joining in as well. So, you know, like you've mentioned,
14:37banks, including yours are already taking measures, trying to be more innovative to
14:42attract more deposits. But like you said, we're already seeing a lag that's persisted for the
14:47last eight to nine quarters. What is the outlook going forward? How do you expect this to play out?
14:53And if this gap continues, what are the implications from a banking industry
14:59perspective as well as from an economic perspective? See, the one thing is that the
15:06continued loan growth indicates that there is an economic activity which is picking
15:10pace and which is a good thing. And in this, if I can talk about our bank, the agriculture growth
15:16rate, loan growth rate has been upwards of 17% for the last year, including the quarter one.
15:22The SME loan growth has been 20% plus. So, these are productive sectors. These are not
15:27consumption loan growths. And in the housing loans also, we have had a strong growth of nearly 15%.
15:33The system is slightly higher than this. So, clearly, these are sectors which are seeing
15:38good growth. Even corporate side also, we are seeing good growth. I think we ended the year
15:43at 18% and even quarter one was quite good at 15.5%. So, these are the sectors which we normally
15:49want growth so that the economy gets supported and economic growth happens. So, that's a given
15:55that in case these sectors are growing, then we should find a way from the banking system
15:59to support these sectors. Now, how do we fund them? One is, of course, deposits continue to
16:05be very important and 90% of loan growth traditionally has been funded by deposits.
16:10But since we have a short term problem, which is unrelated to this loan growth, the answer which
16:16most banks have taken so far is to raise money separately. For example, many of the banks have
16:21raised infrastructure bonds. These allow you to fund straight away without the SLRCR. And, of
16:26course, this is long term. And the infra book of many banks and ourselves included is large enough
16:32to be able to absorb this kind of instrument. The second thing is the AT1, etc. Again,
16:38banks are doing that not only for the capital ratio, but also for funding, etc. So, I think
16:44there are some ways. Some banks have gone in for bug deposits, which the governor cautioned against.
16:49And I guess hopefully this situation will not arise that the loan growth has to be
16:54crimped in order to balance out the deposit. That has not happened. But
16:58except for a couple of players whose CD ratios are very, very high, nearly 100% or more,
17:03they have had some issues where they are now trying to downsell some portfolios, etc.
17:08I hope this is not the situation going forward. All right. So, you broadly believe that it is
17:14unlikely that we will see credit growth having to be trimmed because of the current situation.
17:21Is that right? That is right. And I just compare this situation to some years back when we had a
17:28similar situation. Markets were doing very, very well. And deposit growth was lagging the loan
17:33growth for about four, five quarters. But ultimately, it evened out as the markets corrected.
17:37And as the banks also focused more on deposits like we are doing now,
17:41so this came back to the normal. So, I guess this ultimately will happen. The only caveat I have
17:48there is that in all developed markets, the investment, the move from saving to investment
17:54is something which is a secular trend. And in our country also, ultimately, this is going to happen.
17:59But once that happens, the alternate sources of the funding of corporates, let us say the
18:05corporate debt market, the bond market, etc., will also develop alongside. So, this will ultimately
18:09balance out. But for the time being in India, I think this will revert back to the normal mean
18:14which we have had, whereby deposits are gathered and they are nicely funded. Right. So, the question,
18:21you have given some great insights. I think you would be able to help us understand the very
18:27important question which has been floated by the RBI in their discussion paper going forward.
18:33You know, the ratio of deposits that you have to keep has to go up to make sure that liquidity is
18:38taken care. What are your thoughts on that? So, first of all, it's a discussion paper and as the
18:44governor also did not comment on in his own commentary with the journalists later. So,
18:49I wouldn't like to take any stance on this. We have given our feedback to RBI on this. As it
18:54stands, yes, if that is implemented as is, then clearly there will be some haircuts to be taken
18:59and our factors have been increased. So, more of the deposits will have to be given for HQAA.
19:05But I think through mutual discussion, we will come to a satisfactory solution. The concern
19:10probably was to the Silicon Valley Bank where a lot of deposits were taken out through the
19:15internet and online channels. Since we also have a lot of customers online and they are increasing
19:22and it's a desirable thing. So, I think that was the concern. But since the governor is also on
19:26record to say that we will discuss with everybody involved, all stakeholders, and we have given our
19:30feedback, I would not like to comment on how this will play out going forward till we have the
19:35final deadlines. All right, sir. One quick question before we can let you go. The RBI
19:42governor today also spoke about how economic growth remains resilient even though inflation
19:48has been a point of concern currently and does not look like it's abating immediately.
19:55What are your quick takeaways on that front? From your perspective,
20:00what's growth looking like broadly and what is the expectation going forward?
20:06So, economic growth is definitely stable, definitely resilient as the governor has explained.
20:11We have had several quarters of 7% plus growth. So, I think that's going well and we see this in
20:16the terms of the growth in our portfolios, as I explained earlier, both SME, the retail,
20:23the agriculture, all of them, corporates, all the segments are seeing broad-based good quality
20:29double-digit growth, high double-digit growth. So, clearly the economy is moving up and we also
20:34see this in terms of all the other numbers in terms of sales of various companies, etc. So,
20:40therefore, the economy is clearly doing well. As far as inflation is concerned, I mean at 4.8%,
20:45it is not as high. Of course, the RBI is on record to say that they would expect 4%
20:51sustainable inflation, but I think 4.8% is not something which is crimping or affecting growth
20:57in a big manner. So, I don't think that's a real concern at the moment. They, of course,
21:01want the inflation to come down largely because the customers get hurt, the retail people get
21:05hurt. So, in that sense, they are working on that and economic growth is very stable. It's doing
21:10well. We have the largest, fastest growing large economy in the world. So, I think that speaks for
21:17itself. All right. Thank you so much, Mr. Tiwari for taking time out to speak to NDTV Profit. We
21:25hope to have you back with us soon enough. Thank you very much.