Mark Mobius, Stephen Roach bullish on India

Global market top guns Mark Mobius and Stephen Roach remain bullish on India and believe the Euro crisis will have little impact on the domestic economy.

“Looking at the fundamentals, the growth rates in emerging markets (EM) are much higher than that in developed markets (DM) currently, which makes EMs like India (expected GDP growth of 7-8% in CY2010) more interesting. As compared to average 5% growth in EMs, the DMs have been growing at around 2%. Also, debt-to-gross domestic ratios (GDP) are significantly lower in EMs while the foreign currency reserves are higher,” said Mobius, executive chairman, Templeton Asset Management.

Among the BRIC countries, Templeton believes most of the bargains can be found in Russia and India considering their lower valuations, while the firm is less overweight on China and Brazil.

There are fears of a double-dip recession in the wake of the Eurozone debt crisis, but the experts believe there is less likelihood of such an event — they believe the crisis is far less severe than the kind that induced the contraction witnessed in 2008-2009.

“The situation in Europe is not enough to cause double-dip recession, but it’s a close call. Global economic growth, which is still anaemic, may remain around 3.5-3.75% over the next 3-5 years. The world just doesn’t have cushion to absorb more shocks like Europe,” said Roach, chairman at Morgan Stanley Asia.

But he called the European situation “worrying”, adding: “The fiscal consolidation and austerity measures being put in place there would wipe off around 1-1.5% of GDP growth there, which is serious, but not devastating like the 2.5% cut in GDP which the world saw last year.”

Mobius said: “There is less chance of double-dip recession happening in the current environment where money supply is at higher levels while the interest rates are still quite low. The economic indicators and consumer sentiment index suggest improvement in growth in most of the markets. We do not see the US or Europe crashing into recession or depression either.”

“If the European Union places import restrictions, then Asian economies may be impacted a bit as exports to the US have also gone down” said Mobius.

“India continues to have Europe as the largest export market at around 20% market share. This may result in a slight impact with 0.30-0.40% of GDP being knocked off,” Roach said.

Roach said India needs to move faster on exiting its accommodative monetary policy and also increase its savings rate.

“India is running behind the inflation curve. The central bank has a challenge at hand as it has rolled back just 50 basis points of the 425bps easing that was implemented during the financial crisis.

Also, India needs to increase its saving rate as a percentage of GDP (32.5% in FY2009) to the high 30s in order to be have investment-led growth” he said.