Is Now The Time To Put Money Into Markets? ‘Just Relax’, Says Samir Arora
The Indian and global market selloff seen over the last month or more is not god’s gift to investors, Samir Arora says.
The Indian and global market selloff over the last month or more is not god’s gift to investors. In fact, the rally in the last three sessions seems artificial as the Covid-19 crisis isn’t nearly over.
That’s according to market veteran and fund manager at Helios Capital, Samir Arora, who has a single piece of advice for investors—“Just relax”.
“Nothing will go wrong if you relax for sometime in terms of not putting your last money in this,” he told BloombergQuint in a Skype interview, sporting a vacation shirt with palm trees on it. “Just wait, these are serious issues and not to be taken as because the stock is up or down five percent.”
That comes as the Sensex and Nifty benchmarks posted their best three-day rally since 2009 last week. Before this rally, Indian markets, led by global cues, tumbled the most since the global financial crisis, losing more than a third each.
“This crisis isn’t over, particularly in the U.S. where it’s happening in the hometown of the markets—in New York—and it’s pretty serious,” Arora said. “Whatever you read, it doesn’t seem like it has ended or is ending.”
The total number of cases in the U.S. crossed the numbers reported by China on Friday. Meanwhile cases around the world reached 6.8 lakh, while the death toll crossed 32,000, according to data from Johns Hopkins University. 1.2 lakh of the confirmed patients have recovered. In India, total confirmed cases have crossed the 1,000-mark as the nation in under a 21-day lockdown to contain the virus.
This kind of a crisis does not blow over after a 21-day lockdown, Arora said, adding that people won’t start travelling to Italy or going to a movie hall immediately. Things could take anywhere from three to six to nine months to normalise, he added.
Arora himself is sitting on cash and recommends investors to wait for a few months to see if the experiment of social distancing is working or not—both in India and across the world. Even if the numbers stabilise in India, the market doesn’t have enough leadership to rise by itself, Arora said, pointing out the importance of how the situation develops in the U.S.
To be sure, India’s central bank cut rates and announced liquidity boost that’s expected to inject more than Rs 3.74 lakh crore into the system, while also announcing loan moratorium for businesses and individuals to tide of the economic crisis.
Still, Arora said, “We don’t want a normal investor to put his last money in there and then and everyday feel bad...It’s a psychological game. I have survived so many bad markets of 30, 40-50 percent down because you don’t overdo anything. Just relax.”
Watch the full interview here:
Here are the edited excerpts:
*The interview took place hours before RBI announced its measures on Friday.
It is difficult to gauge, but we’ve got a crisis at hand. What is your advice? Now that we know that the government is ready to do what they can do, you’ve got the RBI coming in and making some announcements. What do you expect? Do you think this will go down well with the markets?
The way the market has gone up, I think anything they (RBI) say will mostly disappoint the market because I feel that this crisis is not over, particularly in the United States, where it’s happening in the hometown of the market, in New York, it is pretty serious.
Whatever you read, it doesn’t look that it’s ending or has already ended. So I think that there will be one round of correction and that will depend on how the infections are increasing in the U.S. or plateauing and how this whole thing plays out. As you read everywhere, it doesn’t seem that it’s only a 20-day lockout, and then next day you start going back to business.
So I would think that there is time to just sit back and basically survive this period with dignity rather than saying that adding so much new will make you some extra money on the side.
I’ve been seeing the fund management industry. Basically funds and fund managers get blown out of the market. Similarly, I guess investors—they will be much bigger collateral damage, even in our market from this for some time.
So, I would think it is not time to jump in, it is time to hang in there and wait for this to play out for another 15, 20-30 days, during which time you have to see the progress related to this lockdown in India and whatever is happening in the U.S.—relating to reduction in new problems, new infections, new deaths—then you can be more confident.
Do you advice holding on to some cash, because we’re seeing FIIs pulling out of the equity markets? The dollar is king. The appetite for dollar will keep increasing and emerging markets probably will be way down on the priority list of investors.
Precisely. It is not that right after the bottom, from the next day, markets start rallying. These things don’t happen. These things should take two, three, or four months even, of market bottoming out and the process of people exchanging, new people coming in and old people leaving in frustration. It doesn’t happen that the market falls, and then boom! the next day stocks go up as if this event is over and done with.
This event is not over and done with. We don’t even know where they’ll really be on April 14. Will be be ready to go back to exactly what was happening, say a month ago?
If you look at the bond market and what the RBI can do in terms of forbearance and all that, if they have given only three months of food and ration and extra money to the poor, how can they tell the corporates that we’ll give you six months and nine months in theory? They should also give them three months, and what will three months do? Nothing.
So, I would think that if we are happy that it (the market) is up, because at the end of the day, we are all benefiting if they do well, we also want to find after some time that in the middle when New York numbers were going up and India and the world was closing down in the middle of that we pre-empted everything.
So we are just saying hold on to some cash. Wait for a month to two months, see if these efforts are working and that these numbers are not increasing in the U.S. and in India, of course, they are well in control. But as you know, India does not have the leadership to go up as a market on its own; it will need the world to do well. Actually the problem with this instance is that everybody has to do well for the rest of the world to do well. Even if in one place, there’s a big hotspot, how do you control and you know, other people will be scared that this can happen in our country. So these things are not to be taken as a one month issue. This is at least five, six months’ issue according to me.
A lot of people are blaming this on algo trades and how the systems are at work right now and it was not necessarily a rational decision for a lot of these financials to go down the way they did. You agree or do you have a different view?
We agree separately that a more normal fellow would sell HDFC Bank down 30-40 percent or Axis Bank and all these banks. I agree with that.
But the point is that when there are redemptions, if they were redemptions, then the stocks that people have they have to sell. That’s why I say that shorting is good. For example, when we have redemptions, sometimes we can delay our selling by instead shorting the index or shorting some stocks and basically paying out from the cash that we have while still maintaining the net that we want.
So the shorting is an outlet for some people, but it can’t be an outlet for an ETF if you have redemptions or a mutual fund or country fund. So it happened and now the recovery is also quite okay for the better moment. But all I mean is I don’t think this is a situation where you say that it is over and done with and therefore we buy every day. So we are not buying. That’s what I’m trying to say. We have covered some shorts also in the last week, it’s not that we are super negative. I’m just saying don’t get excited because I am I am not getting excited by this last two, three days rally. It looks a bit artificial, even in U.S. where everyday numbers are blowing up. And it is not the end of the problem.
What do you reckon that there is a higher probability of the markets moving southwards as well? Because, I mean, the fear in the market is the numbers and the numbers in the mother market are moving up. Do you believe it is discounting the rising cases in the U.S.?
It’s not discounting, it is right now discounting only the fact that so much of money is coming in from the Federal Reserve and in India, the RBI will do somthing. It is not. That’s what I’m saying. The only thing is we need to wait a long time, two months max, to see that these efforts pay out.
What is the current strategy of the world? The current strategy of the world is lockdown, that is not the strategy but let’s say social distancing. So does social distancing has it worked? Has it worked uniformly because in U.S. these numbers are increasing in Italy, they’re not reducing a lot. Also the fact that the economy is closed for 30-40 days- you think that we will go back on the first of June and say let’s go to Europe for a holiday or let’s go to a movie hall on day one?
These things will take three, six or nine months. These things will change everything, these things cannot be switched back so easily. So many jobs are going, so many jobs will go. We saw a demonetisation that even though the market went up what happened to the economy? Now, we can’t say that it is like demonetization because the market will go up again. That time it was an event related to financial flows and money coming into mutual funds and that money being invested. But if you look at the real economic impact, this is how many times worse? It is pretty serious and not to be taken so casually. So I’m saying wait four to three months, it is not going to change anybody’s life, but don’t be blown off by investing ahead of events that are visible. So, it’s not that our net is quite high. I’m saying for margin on the margin, is that we have the long only fund also. It’s not that we are hedging so we are negative on the market or something. We are not, our net will be quite high. But I’m saying, I don’t feel excited today to add and to jump in joy with what is happening because there are other more serious things happening and we have to sort of handle that and then see what happens for the next round of money, for the next round of short covering. It’s not that we are net short and therefore, jumping with joy, we lose money every day when the market falls, sometimes we lose a little less than other but that’s it. It’s not that these are some great days for anyone.
When in your conversations with fund managers if they have to start and when they do see a change, and they want to start making investments into emerging markets, where does India stand? Does it come up in conversations as to when we start making emerging market contributions, will India be on our priority list, or the fact that if your own house is burning, you first look at what’s happening in your own markets and emerging markets take a back seat?
The thing is, when we talk to investors, we are only presenting how India will benefit ABC. But it’s not that you can say with confidence today. But problem is then the what conversation you were saying that happens at a second level- which is one degree higher, which is the strategist in the U.S. or the other asset management companies or economists or whatever deciding or asset allocation, that whether they should be a little bit more in developed markets or emerging markets.
We are talking to the guys who are investing already in emerging markets or in India, because that is the crowd that we can easily talk to. If I read and half of these things you don’t have to speak to anybody. First round has to be led by United States because that is the country where the valuations are much lower whether companies are really very different. Where this problem has to be solved, is when any money comes out of the U.S.. Emerging markets and all, basically all the money comes from the U.S. institutions not so much from the rest of the world. So you have to track U.S. quite closely.
India itself, the positive event will be if we don’t have many cases, so that will be positive. But on the other hand, India would be more negatively affected, because a longer shutdown for us is a bigger pain than in the U.S. where maybe there is an easier way of giving money, where the people will go back fast to work. In India, it will take longer because we have seen that, that even till six months ago, the slowdown was being blamed on demonetization, which happened three years ago. So this, as you can imagine, is much worse because we’ve frozen every small, big, medium business.
So all I’m saying is just relax. Wait one or two months, pray and keep some firepower, that’s it. Beyond that, any day funds hard work out, we can’t be net short, a long only fund can’t go to zero cash. But don’t get excited with joy that this is some God’s gift of the biggest- I saw on TV yesterday, one guy saying this is the opportunity of a lifetime. What kind of logic is that? There is also an opportunity that this country in the world will not survive with the same people that we have and to just call it more an opportunity is just a stupid kind of exciting the public to buy stocks. Just relax, nothing will go wrong if you relax for sometime in terms of not putting your last money in this. Just wait, these are serious issues and not to be taken as because the stock is up or down five percent. Do read the interview. Australia says I’ll close down for six months, USA that you should close down for three months. I am okay if the market goes up because we are in it. All I’m saying is I’m not waiting for the last dollar to be put into one or two months, nothing is going to go. You will not miss some big bull run of your life.
This will put a lot of viewers at ease, because looking at rallies like this, it’s difficult to sit out and think that Oh, I missed the path.
On this may I say that anyway mostly people who are watching this or who are in markets are already invested to an extent. It is not that you’ve come for the first day and you missed it. Normally people are already invested. So, first recovery of that is also a useful thing in life. I’m talking about the last 20. That’s not how it is going to work out.
So you’re making money at the end of the day.
This last week, you have to keep as sort of a reserve because you look at it that the collateral damage on leverage companies in India will be so high, many companies will go out every day. Anyway, you read about listed companies and promoters losing their shares, pledged shares, we don’t want to reach that. We don’t want a normal investor to put his last money in there and then and everyday feel bad. Even when he has 20 percent cash, he will feel happier in life, that he has the money for any problem and he can average if it is really down. If he doesn’t put that, then 80 percent is doing a good enough job if the market goes up. It’s a psychological game. I have survived so many bad markets of 30, 40-50 percent down because you don’t overdo anything. Just relax.