Mark Mobius warns of 'Dubai-like' correction in India

Templeton's veteran emerging markets fund manager Mark Mobius has warned that Indian valuations look expensive and a correction could be on its way unless action is taken.

Writing in his latest blog (published here), Mobius says a recent trip to India reassured him that it will continue on its path of growth and that the Western slowdown has not affected companies there as much as was expected.

However, general valuations in India are giving the manager of the Templeton Emerging Markets fund grounds for concern.

'Many of you have also asked me about the value of Indian companies and I confess that many of them currently do appear to be rather expensive,' he says. 'Just like American investors who prefer to invest in American companies, Indian domestic investors like to invest in their own companies, resulting in a vibrant domestic market. With this demand from Indian domestic investors, Indian stock prices have rebounded from their lows. Given the large amount of liquidity in the market, we believe a Dubai-like situation or other corrections in the market might surface in some areas further down the road if over-spending and over-leveraging go unchecked.'

Despite this warning, Mobius says he has recently found a handful of investment opportunities in the country.

Meanwhile he is relatively unconcerned by the threat of inflation. 'We believe that inflation is a risk in India, as in many parts of the world, but that it will not happen suddenly and will take time to develop,' he said. 'One of the good things happening globally is the trend towards higher productivity. With higher productivity, inflation should not move up because goods are being produced at a lower price.'

(Philip Haddon - Citywire - 09/12/09)