Inflation In U.S. Not Something To Worry About, Says Samir Arora
U.S. stocks slumped for three straight days before rebounding last week. The concerns stemmed from rising bonds yields after inflation rose more than forecasts. Yet, market veteran Samir Arora doesn't see that as a concern.
Rising yields, or a little bit of inflation for a few months or quarters is not something to worry about, said Arora, fund manager at Helios Capital.
The Federal Reserve is trying to calm the markets by saying that the pick-up in inflation is transitory, he said in an interview with BloombergQuint's Niraj Shah. "From current commodity prices and the fact that so much money has been printed (during the pandemic), it is clear that the inflation will come. Also, the employment rate has not gone up as expected.”
Yet, he is not worried. Because, he said, rates are lower than what they were prior to the start of the pandemic and, even if it were to happen, an increase won't hurt markets.
“In February 2020, the 10-year rate was 2%; now it is 1.6%," he said. "Over time if interest rates go up because there is a genuine recovery, because of whatever happened last year, it will not disrupt the markets.”
He cited the example of the period between 2003 and 2007. The benchmark rate in the U.S. was hiked 17 consecutive times--by 0.25 percentage point in every meeting and it ended at approximately 6%. “It had started from 2% because after September 11 the interest rates had been cut and then they started increasing them. But we still had the biggest bull run in those days.”
In the past, the markets have seen 10-15% fall without any of the fears coming true, so it is possible that the fear does it, he said.
“It's possible that it happens, but it will not bring any change in our actions,” he said. "These are just fears created by markets to put pressure on the Federal Reserve because they want lower rates for longer.”
India Investment Strategy
Helios Capital has changed bets during the second wave of Covid-19. “We are buying pharma, tech, specialty chemicals and financials, and buying less of consumer discretionary and home improvement stocks," he said. "In the early days of the pandemic, people needed electronic products and furniture for work from home. But that is not happening during the second wave as (the situation has worsened).”
Talking about the impact of the second wave of Covid-19 on Indian stocks, Arora claimed that everything will be on tenterhooks for a few months. “The second wave will put back India by few months. Then there will be fear of third-wave due to which people might start saving money and spend cautiously.”
Past experiences suggest that the stock markets are ruthless, according to Arora. "They were up a few weeks after the 26/11 attacks in Mumbai and went up few months after the 9/11 attack in the U.S., and even during the pandemic they have recovered (from the lows).”
Watch the full interview here: