Equity Is The Best Asset Class In India And Growth Visibility Is Key: Samir Arora
Equity is better than every other asset class in the country for long term, but investors must bet on stocks that have better earnings outlook, according to fund manager Samir Arora.
“If you are starting today, you shouldn’t care whether there is a dip and just buy (equities) as it will all work out in the end,” Arora of Helios Capital told BloombergQuint in an interview. “I buy stocks where I can see earnings growth and not some big picture background. I buy visible growth.”
But investors must also diversify at least 5-10 percent of their overall portfolio to non-Indian markets and into debt-based instruments, he said. “Basically, the idea is you shouldn’t invest so much in one asset that when it does badly, you may have a heart attack and never come back.”
Arora said the government’s ability to undertake reforms has been restricted due to fiscal pressures. This is a key reason why the market rally has been limited to a handful of large-cap stocks, he said.
“We should have the market going up in a real sense and not just the index dominated by a few.”
Watch | Too Much Hype Around Budget From Markets’ Standpoint, Says Samir Arora
Here are the edited excerpts of the interview...
An initial comment on your end from what’s been happening in the global front in terms of U.S.-Iran tensions and what are you making out of it?
On the global front, I think the world is better off than India is because normally, they have momentum and not many countries are affected by oil and other things. So, on macro, its difficult to say whether this Iran issue will become big or whether their counterattack will be just limited to stocking oil fields for a few days. Looking at India, I feel there is still a lot of uncertainty at least particularly in this month and it will take time for India to relatively do better than the world.
But that doesn’t stop the equity markets from making a new record highest as they made it. It seems like we are ignoring fundamentals to a certain extent in the rush of liquidity that we’ve been seeing so far.
That’s why I particularly said the word relatively because relatively, India is underperforming literally every day, maybe even today. Yesterday when it fell, it fell more than others. If I look at all time high, everybody in the world is at all time high but India is sort of having its own problems which we need to negotiate.
Last month, the emerging market index was up some 5-6 percent and India was up about 2 percent. So, it is actually underperforming even while reaching an all-time high on the large-cap index.
If a day was like yesterday, you would probably believe that weekends are better. Just that small point Samir, are we playing it too much a day at a time? Because this is a very fluid situation and while the bounce is very strong right now, things can unravel in a hurry over the next few.
In India, I am only a fund manager and I am the biggest beneficiary if India does well-both relatively and absolutely. I deliberately bring these things up to try and shake the system a little bit or whoever is watching to say that we can do much better than this and many of the problems are of our own. I deliberately needle the word if you call it that just so that there is no bigger beneficiary in the world or if there are a few like us in terms of jobs, that we benefit if India does well. So therefore, fund managers are the big beneficiaries if the business does well.
India is not doing things properly in many areas and that is the reason for my frustration. If India does well, the market does well, I enjoy it obviously more than anybody else and at that time, I like weekdays more than weekends.
We had a conversation in the last six months—one was before the point where the government heard us. You had said then that market will start moving, and the markets believe that the government is listening. The government has made some moves from the equity market perspective. With an assumption that some of these are discounted, what now needs to happen for the market to either stay the course or move higher?
There is not much of a fundamental disconnect because the index that you are talking about is the large-cap index and in that large cap, there are 5- 10 large stocks that are doing well. They are doing well fundamentally also in terms of their own numbers. General positivity means that we should have the market going up in a real sense and not just the index dominated by a few.
So, what happened last time, I agree that the government is trying to listen but its own degrees of freedom have come down according to me which is related to the fact that the GDP growth is so low that it doesn’t have the room to earn a lot of revenue. Therefore, if it doesn’t earn enough revenue, what can it do with the money that it has, which is its own revenue—the GST collection, custom duties collection etc. So, this time it’s not so much upon what the government can do and it’s the degrees of freedom of coming down.
Also, there are some other events. The fact that these telecom companies when the decision is needed, and time is literally running out. The Supreme Court deadline is the Jan. 23 and I read that that the PSU companies that have been asked to pay this AGR which is up to $20 billion or something, may appeal to the Supreme Court. May means, they may not appeal and then, what will they do? Just pay it and move on or what? We are running out of time and sometimes, things happen where on of Jan. 24 we may say nobody paid and nobody listened to the Supreme Court which are the kind of things I don’t like in the system because these things are embarrassing as a country.
I just feel that we as a market have too much hyped the fact that “oh the budget coming and all and everything” and that is my only point is this time the budget will not be exciting and after the budget and a few weeks after on when all these events that we are hyping too much would have gone out of the system.Samir Arora, Fund Manager, Helios Capital
We can’t predict over what will happen over the medium term, etc., your primary bet is in companies which is inward-looking within India or do you believe that the export oriented ones—because the trade resolution is showing some signs and it might be a better place over the next six months if not in the next 12 months? What view do you have right now over the earnings picture of the Indian companies?
We broadly invest in just three things—financials, consumer and Tech IT.
For a little bit, we have one of these chemical companies but broadly I like India-centric plays. I don’t understand, if somebody can tell me, it would be delightful that China doing the deal with the U.S., how does it help us? I thought it hurts us because if it helps another large competitor, it normally hurts us in the big picture sense.
...These are too diffused for me. So I buy where I can see earnings growth not based on some big picture background. I buy visible growth.