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Remove restrictions, says Templeton CEO

Kishori Gopalkrishnan in Bombay

The Indian government should remove restrictions on foreign institutional investor holdings, says Templeton Worldwide, Inc Chief Executive Officer Charles E Johnson, who was on a visit to Bombay recently.

Templeton Worldwide has a staggering $208.8 billion worth of assets under management, of which its India allocations account for a mere $600 million. Templeton Asset Management, its Indian subsidiary, has assets of Rs 1.7 billion under management.

"The government should remove structural impediments such as overall FII holdings of 30 per cent in a singe company,'' he said. There is a lot of capital waiting to flow into India, but the Indian government must allow more privatisation,'' he said.

Johnson made a strong pitch for privatisation of the Indian public sector giants and said that oil companies, and the insurance industry in particular, should be opened up for overseas investments.

While pointing out that ``things in India has improved considerably in the last three years,'' he added that the delay in share registration process still remains a cause for concern.

On the apprehensions of whether India is going the Southeast Asian way, Johnson emphatically stated that the Indian rupee is very strong and the economic structure is ``pretty sound'' when compared to Thailand, Malaysia and some of the other countries in that region.

``Short-term fluctuations would be there in a emerging market like India,'' he said, adding the fluctuation of the rupee would not have any bearing on the long term FII investments in India. He pointed out that before the Southeast Asian debacle took place, India was given a 2.5 to 3 per cent weightage by Templeton's fund managers in the merging markets index, which has now been upgraded to 5.5 per cent .

``Quite a few of the Indian companies are looking very attractive at their current valuations and Templeton would increase its Indian exposure in the coming months. The long term picture is incredibly exciting,'' he said.

On Templeton's future plans in India, he said, ``India is a market which is too large to ignore. In time, the Indian mutual fund industry would be even bigger than the United States markets with its large urban middle class population.''

Templeton, Johnson said, would be concentrating in building a ``brand image'' and would be educating intermediaries like banks and retail agents about the mutual fund industry. ``Regulators would be also told about the international trends and we would be importing information for the benefit of the industry at large,'' he added.

On the issue of falling interest rates and its impact on the mutual fund industry, he agreed that under such a scenario Indian investors could find debt funds less attractive. ``In the US, a similar thing had happened and then the investors moved to equity funds. Currently in the US, debt and equity funds are of almost equal proportion,'' he said.

``Asian and Latin American countries would surely evolve in the coming years with global pressure to do the right things in the monetary and the fiscal sectors,'' he added.

It may be recalled that the first step towards making overseas investments by mutual funds a reality was taken with the setting up of a working group by the Securities and Exchange Board of India. The group has representatives from the Reserve Bank of India, the Association of Mutual Funds of India and SEBI.

The group has been constituted with a view to drafting guidelines and amendments to mutual fund regulations so as to enable mutual funds to invest abroad.

In its credit policy, the RBI had announced that domestic mutual funds could invest in the overseas markets to the extent of $50 million per fund and a maximum of $500 million by all the funds put together. The detailed guidelines were to be framed by SEBI.

After being shunned by investors for over two years, emerging markets country funds may well be on a comeback trail, according to foreign institutional investors, who maintain that Merrill Lynch Asset Management launching an open-ended India-dedicated equity fund follows close on the heels of the one introduced by Templeton some time ago.

Templeton's India fund is a clone of its domestic equity mutual fund scheme, Templeton India Growth Fund. The fund was launched in Europe with the seed money coming from the Templeton group.

The corpuses of emerging market country funds, especially those dedicated to Indian equities market, had witnessed significant erosions towards the end of calendar year 1996, following massive redemption by investors, disgruntled by the consistent fall in domestic share prices and a slowdown in the economy, FII sources pointed out.