2019 will not be a year to be bearish from day 1, says Samir Arora of Helios Capital
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
Samir Arora is the founder and fund Manager of Helios. Arora is considered as one of the ace investors who lends his guidance to the people on the trends in the market over the years. Arora said 2019 would be a positively trending year although not a run-away year rally initially. It won’t be a year when …
Continue reading “2019 will not be a year to be bearish from day 1, says Samir Arora of Helios Capital”
Samir Arora is the founder and fund Manager of Helios. Arora is considered as one of the ace investors who lends his guidance to the people on the trends in the market over the years.
Arora said 2019 would be a positively trending year although not a run-away year rally initially. It won’t be a year when you have to be bearish form day one, so we are going in bullish,” he said, adding that even 2018 hasn’t ended on a bad note.
Arora mentioned that the strength in the Indian currency is a big positive for foreign investors.
In an exclusive interview to CNBC-TV18 about his views on rupee, oil prices and how markets will likely behave ahead of this year’s general elections.
Watch the video here:
Edited Excerpts:
How are you feeling about markets in 2019? Are you feeling much better than you were feeling in 2018?
Actually, in the end, 2018 hasn’t turned out to be so bad. In the last two months, markets have improved because of the improvement in the currency and you could associate it with some fundamental change in oil etc, that going in looks better but 2018, in the end, it was okay considering that these times came after a few good years, it was okay.
2019 won’t be a runaway year initially but will be a positively trending year and then we will see what happens in May. But it won’t be a year where you have to be bearish from day one. We are going bullish but you cannot have a runaway rally I think till this thing gets sorted out in terms of election outcomes. After that, you could have a very good year if the rest of the world doesn’t fall apart.
I was wondering why it should not be a good year if we are seeing some kind of private capital expenditure (capex) ticking, we are seeing better order books in many of the capital goods and we are seeing banks are cleaned up. Yesterday, the austere RBI said that NPAs have peaked off and they are forecasting in their base case and expecting lower NPAs in the coming quarters for the banking sector as a whole and even for the public sector banks, NBFCs are not there so there is a field day? All this should add up to better growth numbers, better earnings?
Yes, I agree, first is that currency stops depreciating is such a big deal for foreign investors and now even if it goes back plus minus a little bit, broadly it has stabilised and that itself takes away many of the hesitations foreign investors have.
In terms of fundamentals all these things add up – oil down, stability in currency and GST etc having taken more time, all that is good but still there is an event and that event (election) is associated with high volatility in the past and even now could be. Second is anything that the government may do, which is viewed by the market as being overly friendly to farmers, rural etc affecting fiscal deficit. But broadly it is a good year but I don’t think it can be a very big year till we have crossed the event and after that, it does not matter who wins or loses beyond a point but I don’t think you will celebrate so much before.
October to December has been one of the good phases for the market. The market actually reacting well on the bad news as well, the market breadth has been strong over the last two months and we have seen some rotation from exporters into domestic stocks, cyclicals, do you think that could be the theme as we move forward?
In a sense the fact that exporters basically let us take that as tech not as much as pharma, I don’t see a play for tech. It makes no sense to go after and then buying stocks that are up 30-40-50 percent. And if you look at earnings growth of those companies, they are 10-12 percent. And for the large IT companies which are up 30-50 percent, their numbers for 2020 over 2019 would be maybe 10-12 percent for Infosys and maybe 14-16 percent for TCS, which if the markets were stable nothing to write home about after they had this currency benefit, global benefit, US benefit, I would agree with that.
About revival of capex, I don’t think that is so straight forward for two reasons. One because if the government has to make a choice then it would rather give direct money or spend it more visibly in the short-term than setting up new projects, which would take 3 years to implement because right now time is running out for them in terms of elections.
How do you approach this market from a retail investors’ standpoint because there is one view that after the kind of loses seen in 2018, perhaps the best way to approach 2019 at least until elections is to stay in safe quality large market leaders. But the other view is to buy into some beaten down names, infra stocks – the stocks that you have gotten cheap? How are you approaching it?
I am not a mutual fund manager but I don’t think the loses have been steep, other than people buying small caps on their own account. I look at all fund NAVs and they are broadly down by 5-7-10 percent, very few are down 20 percent plus. So if somebody has lost 5-10 percent this year in rupee terms, I don’t think it is such a big deal that it should be viewed as changing somebody’s strategy or their confidence being shaken after what happened in 2017 where they would have all made 40-60 percent.
So there is no question that in big picture equity markets do well and the first thing somebody should do is not walk away from the market.
In terms of buying beaten up names, I feel and it always happens, you feel that they deserved it and maybe we didn’t realise it then.
So for us, it is a mix and match as it should be for everybody. You may buy one or two beaten up names but that is not a strategy that is diversification of different styles. You will be more confident on some companies because they are doing well, and some you buy because they are beaten up but neither of them can separately be a strategy. It is a mix of buying 40-35 names with slightly different motivations behind them.
We just had an economist telling us that while there will be a slowdown in the US. The developed market, especially the US could still be the preferred destination for smart money and EMs will wobble because of the global slowdown. Would India be an outlier because domestic money has quite effectively grown as a force to reckon with?
My positive story for India is that in 2018 foreigners were selling and the domestics were buying. The reason why foreigners were selling because the currency was depreciating every day and irritating everybody. Once the currency stabilises which seems to have, the foreign investor is much, at least people like us – I think they are all similar in that big picture thing – able to buy stocks which we like. We just don’t want an overall like a stone pulling down you into the sea or water. So if currency stops you can sell a story to foreigner investor that there is not much too lose whether the gain takes the time or not. My dream scenario is what happened in 2017 and many other year before that both are buyers.
I think there is a logical case for that. Both foreigners and domestics are buyers and then the market really goes up and then of course IPOs and divestments and whatever happen to try and match the demand but that is the scenario we are hoping for.
Buy what in 2019? Give us a New Year’s gift.
The problem is that I have been giving gifts for 20 years, but you guys want a new gift. There is no need for a new gift. The old gift is private sector banks. The same 2-3 banks which even last year they did well. I am sure last year on January 1 we would have discussed that. The reason why we won’t normally say a completely new name because as I have been saying for ever we buy 30-35 names. The smaller names are 2 percent. Some time they disappear from the face of the earth and it doesn’t matter to me. But three out of four times they go up and therefore the overall portfolio returns are good. But the point is anyone name if you highlight it could be the one which blows up. So, in general, the point is that in India and even in the world if you see the themes that have worked well in a big picture long term sense and which has not been shaken right now in India at least is financials and consumer.
The other, the infrastructure and maybe tech, pharma of that kind or so at least the US tech styled but in India if you say I will buy infrastructure, sometimes I will buy the commodity. A view will also do but you never have full heart behind it and you are doing it because you want to cover yourself but you really don’t have so much thing that a stock is been beaten. Half of these stocks that have been beaten up have disappeared from the face of the earth, it is difficult.
One sector which has consistently underperformed is autos, even the big leaders like Maruti Suzuki, Ashok Leyland has really seen a massive decline. Tata Motors, of course, we all know what has happened to that stock – it has been in a bear market of its own and not too many auto stocks which have done well. What do you think is going wrong here and are there opportunities?
First of all, they are a different story. We own Maruti and we owned it for many years and we still own it and we think it is okay. The others such as Tata Motors hasn’t done badly because of India. It has done badly because that business is a capital guzzler and it is not easy to analyse it. So, these are different stories. We would own the consumer type in the sense that these are dominant company and overtime this growth can’t disappear in between maybe there was higher growth because of these Uber and Ola type guys and maybe that made it a little higher than normal and over long term it may reduce the car demand by 1 or 2 percent here or there because in theory if this becomes very convenient than people may not want a second car or first car.
Big picture we like it and it has corrected on 20 percent and it is okay. It is again as I said a portfolio stock. It may not be if you were to buy only one stock it is a good stock. We don’t buy Ashok Leyland, Tata Motors.
On consumer durable stocks, the consensus view now is that a consumption will take a back seat and capex will see a pick up, would you buy that view?
The thing is after that if you look all these guys who say that we believe in capex you know what are the stock they recommend, I already have them. They will say buy ICIC Bank or they will say buy maybe Axis Bank because they will say it is corporate and it will finance capex or they will say buy L&T. These are all the Maruti equivalent or the TCS equivalent of these businesses and we like them all.
But when we say capex, we mean will you buy a beaten up name which has got no order, will you buy a BHEL? I will not buy, so depends on what you mean by capex. If you mean in a direct indirect way it is capex it is okay. I don’t feel like betting on these exotic things. It is better to bet on exotic financials which we totally relate to and understand or even consumer where even in the bad times those stocks like if you buy MNC consumers some of them are very PE.
But some of them have corrected also say 20-30 percent basically with the slightest shift in few numbers they go if you look at their history and at least you can project 5-10 years of growth or maybe 20 years growth with seasonal or other issues coming in so those are easier for us to buy so that we can talk more to you.
All the guys who don’t come on you channel are the guys who do over analysis and then therefore they must be telling you we have no time to talk. I am always available because I do things simple and easy.
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