To: Mohan Marette who wrote (4909 ) 7/3/1999 1:38:00 PM From: Mohan Marette Read Replies (2) | Respond to
Interview with Dr. J. Mark Mobius, Head Templeton Emerging Markets FundDr. J Mark Mobius is synonymous with emerging market investments. Dr. Mobius has carried forward the value investing philosophy of his illustrious predecessor, Sir John Templeton. In an exclusive interview with India Infoline, Dr.Mobius shares his thoughts on value investing applied to the Indian market. ‘Value investing' means the practice of investing in stocks as their share price becomes cheap relative to the fundamental value of the company. The lower the share price, the more attractive the bargain appears. This differs from momentum investing, the proponents of which believe in purchasing a stock as the price appears in the early stages of an advance. We are practitioners of value investing as we feel that purchasing a stock as its price falls leaves greater upside potential and limits the risk of buying into a stock at the top of a short run. As a stock price bottoms, those factors pulling the stock price down become more sentiment driven than actually based on the value of a company. Thus, by investing as the price falls, we are getting a discount to the company's real worth because sentiment is bad. The Templeton India Growth Fund (TIGF) has not always underperformed the benchmark indices or other mutual funds available in India. According to Micropal's list of peers to TIGF, our fund was the top performer over the past three months against of a group of 22 other funds. In addition, over the same period, the Fund outperformed both the MSCI India (Rs) and IFCI India (Rs) total return indices. This strength has not come by chance, but because we made investments with value in mind, and as Indian and international investors became more interested in value, the Fund began moving ahead of the pack. We do not comment on our sales and purchasing activity since it will change from time to time and we do not want to mislead people. We believe the long-term outlook for many emerging markets looks bright. We are finding bargains around the globe and believe a long-term recovery and growth trend is in the making. Over the short term, however, we expect some volatility as prices adjust to a new interest rate in the US and the shock to sentiment that new rate could create. Over the long term, we believe the recovery will be preserved. Driving this belief is the increased demand out of emerging markets combined with steady demand from the US and Europe, which should begin to erode the glut in supply presently being experienced. Many problems remain, that is for sure. However, we believe growth will be maintained over the next four to five years. Of course there will be some shocks along the way, but the general trend should be preserved. While we appreciate the advances made by SEBI over the years, such as the forced dematerialization and increases in market efficiency, we still see many areas which require improvement. We are particularly concerned with the slow rate at which improvements are made and the severity of minority shareholder abuses. Dematerialization has and will continue to make a significant impact in improving transaction efficiency and reducing the problems associated with a paper-based system. It certainly has reduced the volume of such paper-based transactions. As a result, we have been witnessing a decline in the number of problems associated with lost or stolen shares, registrar's objections based on improper supporting documents, long re-registration cycles, and other outdated hassles largely eliminated in most markets of the world. However, the dematerialization process has also been a very painful one for many foreign investors, including us, as there have been teething problems. We have spend many man-hours tracking down shares and chasing registrars for shares. We now wonder if this amount of management and staff time is worth it in India compared to other countries where we do not have such bureaucracy. No, we are not. Our experiences have revealed a variety of shortcomings in their corporate governance practices. One frightening example is the amount of time some company registrars take to re-register shares in the purchaser's name; a process that must be completed before we are able to claim corporate actions and sell shares. In the past, we have seen companies hold up this process for well over two years! One other example is the case involving a tender offer made by an Indian company for shares of another company. Upon losing a takeover battle, the company chose to declare their tender offer invalid and thus sought to return all tendered shares without making any payment to those shareholders. For shareholders who chose to tender for their offer and as opposed to the winning one, they lost big as the price and liquidity of the target stock plummeted after the takeover battle was over. You know about this Sterlite case.
