Mark Mobius: Valuations don’t matter to us, growth does: Mark Mobius

The biggest sector in India is financials; that is 40% of the total index. You have got great banks, great insurance firms, PSU banks. They are up more than 50 to 100 times in 20 years. Do you own anything there? Would you like to buy something in Indian financials?
No, not really, because we find that this is really interesting. When you look at the index, it is heavily weighted towards financials. If the financial weighting in the index was less, the index would probably be performing better because the other companies are doing better than financials and at this stage, there is a real problem with the financials and with bad debts.

So you will not buy Indian private banks and financials?
No, we will look at them in the non-bank financial institutions which have come down a lot. If we can ascertain that they are going to survive, then we will look at them.

Consumers is another large pocket of the market. We have got great companies like HUL, Nestle, Britannia, fantastic, well run, no-debt companies, great cash flows, great ROE, great ROCs, expensive valuations, would you buy them?
Definitely we will buy them. When you are talking about valuations, you talk PE and price to book, this will not bother us. Do not forget the markets are looking at the growth prospects that is where you want to go.

Let us look at another big pocket — IT services. It is a stable business with zero cash companies, great return equities. But they are growing in the range of only about 9% to 10%. Indian IT companies have a huge advantage because it is export dominated, dollar facing franchises. What are your thoughts there?
Some of these software companies have sort of reached the plateau where the growth prospects are much less simply because the competition has got much smarter. But that does not mean that they are all going to be in that condition because some of them have begun to develop their own software packages that can be sold globally independent of the IBMs and the other major companies. That is where the growth will be.

The breakthrough will come when they are able to reach that new plateau. What I would do is look at these companies to determine which are going to breakthrough that floor and begin to compete with the IBMs of this world?

Did you ever anticipate that the Indian economy could be a $3 billion economy on course to become a $5 trillion economy? When you started investing in India we were at about $400 million, we are almost 8
times-9 times of that money.
When I first started investing in India, it was chaotic. I did not expect that this would happen frankly because it was physical delivery of stocks, people were carrying the stocks around in these bamboo poles from one place to another. It was chaotic. It is difficult to imagine that we would have this kind of growth rate going forward but I would say about eight years ago, I saw there was an incredible opportunity for growth and now of course, situation has really changed.

If you are allowed to buy one, only one stock, what will you buy?
I would buy the stock that has over 20% return on capital, pays a dividend yield of 3% or 4%, has a debt equity of less than 50%, has no multiple share classes, one share class and has a turnover of at least 2 million a day.

Is it Bharti or Idea by any chance? Which is the one stock you will never buy? Let us talk about it.
Companies that do not have good corporate governance should be avoided. , You get a sense of companies when you speak to the managing director, the people that control the company about their attitude towards investors. If their attitude is that hey investors are secondary to our orientation, then you do not want to invest. It is really about corporate governance at the end of the day.