Samir Arora, Founder and Fund Manager, Helios Capital, talks about his expectations from the domestic market, returns from markets, pre-budget rally in the market and hopes from budget
(#BUDGET2020ZEE) among others during a candid chat with Anil Singhvi, Managing Editor, Zee Business. 

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Excerpts: 

Q: During your last interview on September 20, 2019, you said that 'I have bought more than what was necessary and I have never lived so long till date'. The markets are at the lifetime high at present and it seems that you have celebrated Diwali in true sense in these 2-3 months?

A: These 3-4 months have saved the whole year. It was a good one. But, I am happy because we made big money in America too. We have a fund that invests in America and we have earned returns of up to 30-32% there. We haven't seen such returns in India for many years. In general, things that occurred in the last 3-4 months has been a narrow one but the financial stocks and MNCs have performed well. But, I'm not as happy as I was last time. 

 

Q: Reason for not being happy?

A: It is so because the government has benefitted the corporate sector first by reducing the corporate tax, which is a very difficult task for any government to do so. And, that's why it was assumed that other major things like personal tax cut among others will be announced. But, the recent decline in GDP growth makes me feel that the government doesn't have the ability to do anything more. There are talks related to GST hike or you may say it as tightening exercise to stop frauds but it will take back money from the same public who was spending a bit, maybe, by stealing it. The bottom line is that you are in a mode to make money from the public. Besides, the budget, which used to excite us every year, is an overhang this time because it doesn't have many things to keep the market happy. 

 

Q: You say that happiness is lacking because of the slowdown but it is also slow in America where you have earned returns of 32%. Even China and Europe are also facing slowdown?

A: There is no slowdown. If you have a look at the earnings growth of the top companies, like Google and Disney among others, then there is an earning growth between 20-25%. Secondly, the interest rate is near zero, there. Thirdly, it is related to the expectations of people who invest there. They have a feeling that they are buying global companies, brands and companies that are innovating. But, people come to India with an aim to garner growth, which if remains low may give a negative sense, but, I am not negative and was just saying that I will not be excited for the budget, this time. 

 

Q: So you are saying that there will be no pre-budget rally this time. But, there was 6-7% pre-budget rally on Nifty in 2017 & 2018, except in 2019, when it closed 0.50% low, maybe because part-budget was presented due to Lok Sabha elections. Then why there will be no pre-budget rally this time?

A: Even I researched with the same thought from 2008 onwards and found that January month was negative in 2008, 2009, 2010 and 2011, which means four consecutive negatives are present. Apart from this, January's have been negative in 2014, 2016 and 2019 also. Thus, 7 January's have been negative in 12years. I am not negative for the year but the budget
(#BUDGET2020ZEE)-hype can't turn me positive because I don't know what positive can happen in the budget. The degree of freedom of the government has reduced and things that we count as a positive one in the normal-like privatisation - which is being done, infrastructure spending - it was announced last week, more allocation to rural areas - but I feel it is less. So, I am not expecting the positive announcement, the headlines and market relate to positives like reform, tax cuts, corporate tax cuts and all these things are happening - independent of budget. 

 

Q: What are your expectations from the budget? Will you like that personal tax rates are reduced?

A: I agree. And I have been saying this and for this reason, I was bullish. But, its scope has come down, now, and I backed-off since when the talks related to increasing the GST rates made the news. Increase in GST rates at the same time will demean the value of personal tax cut. So, let's go beyond budget, otherwise, things were fine as the market hasn't performed well for the last 2 years and we have underperformed the world, interest rates are going down slightly. But, the economic recovery can't be made in a single shot or an announcement. It should move slowly. But there are few more negatives and the government has to deal with like Vodafone Idea or AGR because the Supreme Court's deadline will end in the next 20-22 more days. What will happen if it doesn't pay the money by the date, I think there will be a major uproar, and if the payment is made then how it will happen. So, I am just saying that wait and watch the happenings of the month. 

          

Q: Let us know about a thing, if done, can change the mood of the market? 

A: One thing is there - but I am not positioned for it at present - that can lift the market by 5% in a day and that is LTCG (long-term capital gains). Interestingly, there will be no loss because people have been into a loss for the past two years, which will set off on the next 2-3 years. So no one will be at a loss if LTCG is removed. 

 

Q: Tell us about your portfolio positioning at present and long and short ratio? 

A: I don't get negative while shorting the Nifty. It neither increases nor decreases a lot and fluctuates between 2-3% up/down. It is better to have them instead of puts because Nifty short is more liquid and it can be recovered in a fraction of seconds from any location and any time may it be from India or Singapore. If my Nifty shorts are removed that was taken randomly just because I feel little-bit negative, even though only Nifty is on a rise. Then, my short stands around 60. 

 

Q: This means you haven't reduced or emptied your portfolio.

A: I have reduced it in my own way. There is a condition in which your longs are above 100 while shorts are 40, which means your net will stand around 70, which is risky. The second case is that in which your longs are less than 100, maybe 95. This, reduction of long and short positions hints that you are getting conservative. Besides, it depends on your mindset for instance if I am asked to recommend a stock than I may asl to wait for a month and let me rest for till then, while the second mindset is that in which you are searching for the same actively. So, I am not active at present. 

 

Q: Is it happening due to year-end or you are in a holidaying mood or it is a time when one should wait till budget before investing?

A: I am waiting for the budget. The other issue is related to Vodafone Idea, who have a debt of around Rs1 lakh crore and what if something turns wrong because just 15-20 days are left but the government hasn't informed yet that it is working with the company and is going to the court to ask time or the two, the government and company, will figure out a new cash flow. But it is saying that the company will approach the court and ask for the same. It might get flexible at the last stage but I literally feel that the Supreme Court has asked it to pay the debt by a particular date and what will happen if the dues are not paid by then. So, these are very serious issues but we are not able to figure what is happening. They say things will happen at the last minute, however, I have seen such things happening in Movies of Tom Cruise but personally don't understand how it happens at the last moment. So, I will buy anything after the culmination of the two events. 

 

Q: So, let us know Nifty will reach 13,000-mark first or will fall to 11,000-mark?

A: If events turn up to be a positive one then it may not fall but the main point is that your audience is investing only in India, which has underperformed the world and we have to explain the same to the foreigners. There are two things (i) Indian index has been defeated or our index s better than our competitors. But, India is doing bad when compared to other markets, may it be an emerging market or developed market, gold, oil, Russia, China, Brazil or some European market. It gives us more tension rather than the stock should be used to beat the market. 

 

Q: What is the outlook for 2020 for the US market?

A: If feels that if the democratic candidate turns up to be a strong young then the market may fall because the democratic candidates are left-leaning. They call for raising the taxes and breaking of the big companies. If Michael Bloomberg, who is the ninth richest man in the world, who is trying and is investing a lot then he will be a good guy and you will not have a fear and will hardly matter who wins, a democrat or Trump. But no one knows who will be their candidate yet but broadly election will be a big negative there also, if people have a feel that Democrat is going to win the election.

 

Q: What can be the triggers for bullishness in India?

A: The market will not behave bullishly at present because the economy is not in good shape but the market is doing good. And, there is no other basis on which the market can be driven more. So, it can be narrowed in which there is an improvement in the mid-cap but it can happen only if some scary events don't occur on the midway for next 3-4 months. 

 

Q: Can you provide a timeline when the mid-caps and small caps will start performing?

A: I don't think that they will perform at all. When it comes to mid-cap, I will talk about the entire index not of 3-4 midcap stocks as some of the other ones will keep performing, and it will run if the finances are available at an ease to every company. At times, banks, when to have a fear, they prefer lending only to large companies and they have faced a huge loss in the recent past. There is no confidence as they are not lending to NBFCs, big companies and infrastructural projects. Then, how can they finance small companies at ease? The government is not paying its dues to small or big companies who will get their money in infrastructure and completed works. It is said that the GST refunds have started in the recent past. Improvement in these aspects will help the small companies to grow and move on. Recently, the big companies who are lying in the middle cap are really not mid-cap. 

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Q: You have talked about the telecom sector with a willingness to see what unfolds in the case of Vodafone Idea case. Do you think that the company and Bharti Airtel will turn positive for investment purposes if a solution is created that protects these companies?

A: Bharti Airtel can be a better choice because Vodafone can't survive throughout its life, as to how you can save something that is already dead. It can be saved just in a way that it continues working for the government for the next 10-15 years. What will happen to someone if it is asked to pay Rs50,000 crore for the next 10 years with interests? It is a case which can't be objected either by any leader of the opposition or by the court as they can't say that you are wrong as you haven't favoured anyone. You have asked it to pay the dues in the next 10 days with interest instead of paying the same in one day. Thus, it will have to work for the government for the next 10 years. However, it can raise money through price hikes and under such a situation Bharti Airtel will emerge as the biggest beneficiary, as it is not facing any threat.