In an interview with ET Now, Samir Arora, Fund Manager, Helios Capital, shares his perspective on the global market in general and the Indian market in particular. Excerpts:
Are you still bearish or you have covered your shorts?
Mostly I would say I have not changed my opinion because the outside world has not changed. The only real positive thing that we thought at that time was that the RBI would stop tightening, but right now maybe it looks a bit too late whether they stop or not at least for the next few months because the world has deteriorated much more in the last one month. Right now I am still sort of bearish in a bullish sense. I am overall bullish in life, but currently when I say I am bearish, that means I am relatively much less bullish and on the margin bearish.
What is the base case for your bullish as well as bearish stance?
The bear case scenario is that the world is bad and the India is bad and you need at least one of these two to be positive for us to be positive and right now both are bad and, therefore, I am bearish. The bullish scenario somebody will make is that when the world is bad, India benefits. When the world is bad, commodity prices fall and our valuations are low and all that. Broadly it may be right, but these things take 6-9 months to play out. Even if you see 2008 from the time Lehman Brothers had a problem and even oil had fallen, it does not mean that from next day, India started benefiting. It took six months and that also it took an event, which was the victory of the Congress at that time leading to that rally. It does not happen just automatically because oil was down. Today we do not know what big event we can look forward to which would suddenly change everybody's view and optimism on India in the short term.
So how are you positioning your portfolios to deal with medium term volatility and will you be surprised if Nifty goes below 4500?
Right now we are actually unfortunately more positioned to benefit from that than if it goes to 5500.
What about the currency market? Is the fall in rupee just an irritant or could it also impact the inflows in future?
Right now a super big irritant because in the last two months it has depreciated by 8% or 7.5% and unless you want to hedge it separately or lock it at this level, we have to let it go as far as we can because we think that at least that should come back, even if it comes back in 4-5 months. No point locking it at this price because now you can hedge it and pay another 1% or so, 2%. It is a big irritant because normally when we do day-to-day investing, we are only looking at shorting stocks. If you sell the longs, at least okay you protect because you convert it back to dollar, but mostly we do not sell the longs. We just short against them to try and neutralise the impact of the longs.
Do you see the gap between PSU and private banks narrowing down or do you see the gap will increase in coming quarters?
If you look at the PEs of Infosys, TCS and these 2-3 guys in the top and you looked at all the guys who have been IT company for the last 20 years, their profits may have gone up and down, but their PE differential never narrowed. Everybody is being evaluated on their own ground. For example, HDFC Bank has survived every cycle. You say overextension to brokers, you say derivative future selling, you say investments in infrastructure, you say restructured loans, every cycle they have somehow survived and, therefore, today it is actually only HDFC Bank and maybe a little bit IndusInd Bank because other banks are still falling even if they are in the private sector, like ICICI Bank, Axis Bank. So it is not even that all the private sector banks have held up well.
What will qualify as a buy on every decline and what is currently on your buy on decline list?
We these days do not have much on the shopping list, but basically we have tried to buy stocks which have some control on how much we can lose. One category can be to look at stocks which are down a lot, but where it is not apparent as to why they are down so much. Some of these infrastructure companies are down because they have high debt and they have no orders and they have earnings declines of 100% or they have made losses, but there are some other guys and I can talk about this company because I spoke about it yesterday, which is Arshiya International, which is India's first and only free trade warehouse zone owning company as it owns FTWZ. This is a great concept on the basis of which Dubai has basically created such a strong economy, the Jebel FTWZ, even Singapore is based on the same model. There is no way that India over time will not need maybe 20 such FTWZs, but right now there are only two and both are owned by Arshiya. So we like it a lot. It is down 50%. We had very little in the beginning, but basically we buy it everyday more or less because we do not know why it is down.
The other side is to buy something where there is limited upside, but slightly surer upside. So we own UTV Software where the logic is that the open offer Disney has made is at Rs 1000 and the price today is about Rs 970. It has not really ever happened that open offers get done at the initial offer price set by the acquirer. So normally in this bargaining, you get 20-25% more without much effort. Anyway people are buying defensive companies these days. It is PE based on Bloomberg is only 15 times. Disney anyway is a rich parent, already owns 50.5% of the company. So hopefully they will agree to all of us and pay 20-25% premium and we can have that relatively quickly in the next 3-4 months.
Do you see the bull market reviving, say, in the next one year?
I can see some returns next year after the world stabilises and Indian interest rate starts falling or plateauing and hoping that they are falling, but whether it is a multiyear bull run or a real bull run that needs more than this, but it is possible that the market can go up 20% odd next year. But my problem why I am negative is not for 2012, I am negative from now towards the end of 2011 first or not in the end, but for a few more months because the world is in a real bad shape and India may not be in a bad shape, but it is not so great as of today to be able to say to yourself that ignore the world because India is so good. That is the real issue.
Will you advise our viewers to start bottom fishing at current levels or it is too early to do that?
Viewers should always bottom fish because they have never invested in the market. For people who have some money and who will quickly run away and cover their shorts like we may do, it is very different, but investors can buy some companies which are down a lot or whatever suppose these or whatever names they like because they have zero investment. But if you have some investment in the market and you are quite alert, okay wait for a month, two month because right now the world is pretty bad and it will not be resolved by some Chinese government buying $2 billion of Italian bonds or kind of rumours that are in the world these days. Not rumours, but even if they are true because this problem is not going to be solved with $2 and $4 billion. I do not expect these kinds of events like yesterday itself that Chinese will buy Italian bonds and they will buy $100 billion of Italian bonds. If they buy 5 billion of Italian bonds or 10 billion, it only delays that, Italian bonds financing by two months or not delays, but averts any issue but really it does not change the current issues facing the world.
What are the key events or triggers, which will actually force you to cover your short positions?
The key triggers are first of all the market going up a lot, which makes us panic but that should normally be accompanied with some news that we can connect with it. That is if you see that for five days the US is not falling and after Greece has defaulted, if it has, for 5-10 days, 20 days, there is no issue of another bank being downgraded. Today they have downgraded Societe Generale or some other prices falling, then we can look at ourselves. So basically we can only see it from world stock markets not falling everyday or not falling and going up everyday 2-3%. India itself is nothing great, but if the world was stable, I would cover some of my shorts. That do not mean that I would become bullish, but I would not have such a low net.
Identify one business, one name, one theme for us where Samir Arora is ready to allocate disproportionate amount of money?
That is a problem. This time we have not changed our longs except we bought UTV. Even the other one we had some, we bought more. It is nothing new that we are buying because we like our stocks and even though they fall when the markets fall, some of it we try to neutralize by having shorts on the other side, which are in essence much more short-term oriented because if you tell me today that the world is good, okay, I do not care. I will cover my shorts because in my life, in my view I am bullish, but I just feel super nervous these days because we made the same mistake in 2008. We all made it in the market, this time not me, even last month that today Ben Bernanke is going to make a speech and suddenly he will turn the world and then after four days, President Obama will give some ideas. Logically if President Obama had ideas, he had two years in which he could have implemented them. The third is that two Italians will be meeting four Chinese today and, therefore, the market should be going up. So now I have given up because in 2008, we thought that Henry Paulson, the treasury secretary, knows everything because he was the Chairman of Goldman Sachs, so he knows what the problem was, he has solved it and I never thought that they also have no idea, which we now know by reading all the books. So shame on you if you fool us once, but shame on us if we get fooled every time.
~
Source : ET
Are you still bearish or you have covered your shorts?
Mostly I would say I have not changed my opinion because the outside world has not changed. The only real positive thing that we thought at that time was that the RBI would stop tightening, but right now maybe it looks a bit too late whether they stop or not at least for the next few months because the world has deteriorated much more in the last one month. Right now I am still sort of bearish in a bullish sense. I am overall bullish in life, but currently when I say I am bearish, that means I am relatively much less bullish and on the margin bearish.
What is the base case for your bullish as well as bearish stance?
The bear case scenario is that the world is bad and the India is bad and you need at least one of these two to be positive for us to be positive and right now both are bad and, therefore, I am bearish. The bullish scenario somebody will make is that when the world is bad, India benefits. When the world is bad, commodity prices fall and our valuations are low and all that. Broadly it may be right, but these things take 6-9 months to play out. Even if you see 2008 from the time Lehman Brothers had a problem and even oil had fallen, it does not mean that from next day, India started benefiting. It took six months and that also it took an event, which was the victory of the Congress at that time leading to that rally. It does not happen just automatically because oil was down. Today we do not know what big event we can look forward to which would suddenly change everybody's view and optimism on India in the short term.
So how are you positioning your portfolios to deal with medium term volatility and will you be surprised if Nifty goes below 4500?
Right now we are actually unfortunately more positioned to benefit from that than if it goes to 5500.
What about the currency market? Is the fall in rupee just an irritant or could it also impact the inflows in future?
Right now a super big irritant because in the last two months it has depreciated by 8% or 7.5% and unless you want to hedge it separately or lock it at this level, we have to let it go as far as we can because we think that at least that should come back, even if it comes back in 4-5 months. No point locking it at this price because now you can hedge it and pay another 1% or so, 2%. It is a big irritant because normally when we do day-to-day investing, we are only looking at shorting stocks. If you sell the longs, at least okay you protect because you convert it back to dollar, but mostly we do not sell the longs. We just short against them to try and neutralise the impact of the longs.
Do you see the gap between PSU and private banks narrowing down or do you see the gap will increase in coming quarters?
If you look at the PEs of Infosys, TCS and these 2-3 guys in the top and you looked at all the guys who have been IT company for the last 20 years, their profits may have gone up and down, but their PE differential never narrowed. Everybody is being evaluated on their own ground. For example, HDFC Bank has survived every cycle. You say overextension to brokers, you say derivative future selling, you say investments in infrastructure, you say restructured loans, every cycle they have somehow survived and, therefore, today it is actually only HDFC Bank and maybe a little bit IndusInd Bank because other banks are still falling even if they are in the private sector, like ICICI Bank, Axis Bank. So it is not even that all the private sector banks have held up well.
What will qualify as a buy on every decline and what is currently on your buy on decline list?
We these days do not have much on the shopping list, but basically we have tried to buy stocks which have some control on how much we can lose. One category can be to look at stocks which are down a lot, but where it is not apparent as to why they are down so much. Some of these infrastructure companies are down because they have high debt and they have no orders and they have earnings declines of 100% or they have made losses, but there are some other guys and I can talk about this company because I spoke about it yesterday, which is Arshiya International, which is India's first and only free trade warehouse zone owning company as it owns FTWZ. This is a great concept on the basis of which Dubai has basically created such a strong economy, the Jebel FTWZ, even Singapore is based on the same model. There is no way that India over time will not need maybe 20 such FTWZs, but right now there are only two and both are owned by Arshiya. So we like it a lot. It is down 50%. We had very little in the beginning, but basically we buy it everyday more or less because we do not know why it is down.
The other side is to buy something where there is limited upside, but slightly surer upside. So we own UTV Software where the logic is that the open offer Disney has made is at Rs 1000 and the price today is about Rs 970. It has not really ever happened that open offers get done at the initial offer price set by the acquirer. So normally in this bargaining, you get 20-25% more without much effort. Anyway people are buying defensive companies these days. It is PE based on Bloomberg is only 15 times. Disney anyway is a rich parent, already owns 50.5% of the company. So hopefully they will agree to all of us and pay 20-25% premium and we can have that relatively quickly in the next 3-4 months.
Do you see the bull market reviving, say, in the next one year?
I can see some returns next year after the world stabilises and Indian interest rate starts falling or plateauing and hoping that they are falling, but whether it is a multiyear bull run or a real bull run that needs more than this, but it is possible that the market can go up 20% odd next year. But my problem why I am negative is not for 2012, I am negative from now towards the end of 2011 first or not in the end, but for a few more months because the world is in a real bad shape and India may not be in a bad shape, but it is not so great as of today to be able to say to yourself that ignore the world because India is so good. That is the real issue.
Will you advise our viewers to start bottom fishing at current levels or it is too early to do that?
Viewers should always bottom fish because they have never invested in the market. For people who have some money and who will quickly run away and cover their shorts like we may do, it is very different, but investors can buy some companies which are down a lot or whatever suppose these or whatever names they like because they have zero investment. But if you have some investment in the market and you are quite alert, okay wait for a month, two month because right now the world is pretty bad and it will not be resolved by some Chinese government buying $2 billion of Italian bonds or kind of rumours that are in the world these days. Not rumours, but even if they are true because this problem is not going to be solved with $2 and $4 billion. I do not expect these kinds of events like yesterday itself that Chinese will buy Italian bonds and they will buy $100 billion of Italian bonds. If they buy 5 billion of Italian bonds or 10 billion, it only delays that, Italian bonds financing by two months or not delays, but averts any issue but really it does not change the current issues facing the world.
What are the key events or triggers, which will actually force you to cover your short positions?
The key triggers are first of all the market going up a lot, which makes us panic but that should normally be accompanied with some news that we can connect with it. That is if you see that for five days the US is not falling and after Greece has defaulted, if it has, for 5-10 days, 20 days, there is no issue of another bank being downgraded. Today they have downgraded Societe Generale or some other prices falling, then we can look at ourselves. So basically we can only see it from world stock markets not falling everyday or not falling and going up everyday 2-3%. India itself is nothing great, but if the world was stable, I would cover some of my shorts. That do not mean that I would become bullish, but I would not have such a low net.
Identify one business, one name, one theme for us where Samir Arora is ready to allocate disproportionate amount of money?
That is a problem. This time we have not changed our longs except we bought UTV. Even the other one we had some, we bought more. It is nothing new that we are buying because we like our stocks and even though they fall when the markets fall, some of it we try to neutralize by having shorts on the other side, which are in essence much more short-term oriented because if you tell me today that the world is good, okay, I do not care. I will cover my shorts because in my life, in my view I am bullish, but I just feel super nervous these days because we made the same mistake in 2008. We all made it in the market, this time not me, even last month that today Ben Bernanke is going to make a speech and suddenly he will turn the world and then after four days, President Obama will give some ideas. Logically if President Obama had ideas, he had two years in which he could have implemented them. The third is that two Italians will be meeting four Chinese today and, therefore, the market should be going up. So now I have given up because in 2008, we thought that Henry Paulson, the treasury secretary, knows everything because he was the Chairman of Goldman Sachs, so he knows what the problem was, he has solved it and I never thought that they also have no idea, which we now know by reading all the books. So shame on you if you fool us once, but shame on us if we get fooled every time.
~
Source : ET
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