The Hindu Business Line : It's only `guarded optimism' for now

Dr Mark Mobius thinks Indian equities are now somewhat pricey and margin of safety is low relative to other emerging markets. But it does not stop this decision maker of Franklin Templeton Investments from looking for opportunities here and if a bet is available within the predefined matrix of risk and reward, he does not hesitate to pick it up.

The veteran emerging market stock picker feels there are undervalued PSU stocks for a buy and hold strategy. He constantly compares one company in India with a company, say, in China or Russia or Brazil to identify a bargain. He, this year, has entered shares of a Cambodian company (the country does not have stock exchange), which is listed on Singapore. This makes a difference in strategy. Otherwise his investment decisions are arrived at using the time-tested ratios followed by seasoned mutual fund asset manager - price to earnings, price to book value, price to NAV, debt/equity and dividend yield, return equity and return on investment.

He exits a stock when it reaches the sell limits set by his team of analysts. For the last 40 years or so, Dr Mobius has perfected his strategy of value picking and lived through the rough and tumble of the emerging markets.

Long-distance runner

Undoubtedly, emerging markets are a different ball game. No two mutual funds have same strategies in the identical emerging market. But strategies of some of the overseas mutual funds, that are active in India before the Goldman Sachs' BRIC idea was lapped up by many, are interesting studies in themselves.

Take for instance, Eaton Vance. Its India-centric $1-billion Eaton Vance Greater India Fund is the oldest among the genre - in place for some 13 years. In the last five years it earned an average return of 40 per cent. According to global fund tracker Morningstar, it proved to be the top performer among the Pacific Asia (ex-Japan) funds. It has changed its strategies with time.

This fund now has extended its vision beyond the top 50 or 100 stocks. It is also ready to go an extra mile to identify a small or medium auto component manufacturer or a rice exporter.

How do these long-term players handle short-term hiccups or optimism? Their strategies normally do not change at all in the short-term; they may only utilise the opportunity to either get in or get out of a stock.

Short-term optimism

Last week, optimism appeared to have returned on the back of strong local investments, almost across the board. Overall overseas liquidity flow was bumpy and low.

The market makers and traders have been successful in creating a sense of momentum, courtesy better earnings reports by the corporates.

Though the benchmark index is again close to its all-time high, the sentiment has not crossed the limits of a guarded optimism.

On weekly basis, the market seems to have expanded its boundary a little, but it also sends out signals that it is ready to go two steps backwards after a step forward.

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