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INTERVIEW: A hedge fund manager explains where to invest when nothing is cheap in India

INTERVIEW: A hedge fund manager explains where to invest when nothing is cheap in India
  • Samir Arora believes that the current environment is good for Indian markets because Budget 2021 was focussed on growth and didn’t bother much about the fiscal deficit.
  • According to him, in the next 1-2 years, the Indian stock market may add nearly 15% per annum.
  • Arora believes no matter the market conditions; sectors like financials, consumer discretionary, housing and real estate are better poised to growth than others.
  • Check out the latest news and updates on Business Insider.
India's benchmark equity index Sensex is at a record, above 50,000, with a surge of 9% in just the last 4 trading sessions. While many in the market are debating whether this is a bubble, Singapore-based hedge fund manager Samir Arora⁠— who rightly predicted in November 2020 that Nifty would scale 13,000-14,000⁠— expects 2021 to be a good year for India's share market. He expects a 15% per year rise for at least next 2 years.

The question still remains, are there any stocks that can still earn investors a good amount of profit over the long term? According to Arora, the founder and fund manager at Helios Capital, "nothing is cheap". But that doesn't mean investors should stay away from the market.

You can watch the entire interview here.

He believes that banks, financials, IT, consumer discretionary, and pharmaceuticals are still good bets for long-term investors. "These are no confusion sectors," he said in an interview with Business Insider.

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Here’s the excerpts from the interview with Samir Arora.

In November 2020, you said Nifty may hit 13-14,000 and you were bang on? Where will the Nifty and Sensex go from here?

Right now, it's a good environment for many reasons. First is that the world is good in terms of the market in any way. Equity markets are doing well. Secondly, there is bound to be a strong economic recovery in the world and India. They won't increase anybody's taxes and reassure them that things are more aggressive in helping than that animal spirit. And global and Indian investors have not been investing at least in the mutual funds for the last 5-6 months, and therefore we can't say that you everybody who had to buy is already buying. And the fourth thing is that more recently, as in say, two weeks ago, the market was at one point down 4-5%. Today if we look at it on a year to date basis, it is up nearly 5-6%. If you were to look at this event and say that had we known about this event, say on 15th January or 1st January, that whole dip could not have happened, and you would have still got another 5-10% rally.

In December 2020, you said that the market may find it difficult to continue with the rally. Every company says they have either recovered from the COVID shock or will recover soon. And that can't be true. Is that a view you still hold?

Because I am a long-short fund manager, I know that these guys are doing well or they're not doing well. But they're exaggerating that if they're not doing well, they'll end up doing well in the next six months. So that is not possible because some sectors have been massively hit, but they're all coming on TV because they have to make a trade-off between what they tell the government and what they tell the market.

They will say we have to fire people to the government, or we will be forced to fire. But in the market, you come and say everything is fine. So actually I think because of COVID there are going to be many disruptions.

Tata Motors’ market cap has crossed ₹1 lakh crore. Not so long back, people counted it among the weaker auto stocks. How did the narrative change so quickly?

I have no comment on individual stocks. Since I see it differently, there are some stocks where there is a conflict between a macro factor and acyclical factor.

Just example, the auto industry, all you have to do is type and see how much the Volkswagen Group committed to electric vehicles. It is $25 billion. General Motors says that 100% of their vehicles will become electric by 2035. In that environment, our guy is saying that we want to reduce debt, plus I want to introduce electric vehicles, plus I'll be profitable.

I think there are many sectors; there is no such confusion. The sector with no confusion is the financial sector because it can change according to the market. First of all, some of these companies' history is very good, so you're not taking some big quantum anyway, and they have delivered as well as anybody else. The other sectors where there is no confusion is IT services because they are not themselves betting on any technology. They will learn over time, and those investments are becoming bigger and bigger and plus they are foreign exchange owners. So that's the only way for us to play new things in the world.

The other sector where there is no disruption in that sense is consumer discretionary, housing, real estate, so these things are not going to change. Still, there's no need to go into auto or even into this theatre, kind of companies which are not relevant on day one to India.

India’s Chief Economic Advisor has called for another asset quality review for banks. For someone like you, who is heavily invested in banks, does it spook you?

No. So first of all, I think quite a bit of cleanup has happened, and because if you look at the big picture, the problems came because the banks gave money to cooperate who invested in steel and power in those days and infrastructure, that will end up in the 2006-2008 period. And then all these he got into trouble because either SC stopped something or either corruption was found. There's been no investment recently; nobody has lost money. There may be some fraud here and there. With some more might be discovered. I don't think it's a very serious problem plus we are anyway buying these private sector banks and one state bank. And, they have been around for 25 years, so suddenly we don't think that they've been artificially hiding things and all, then attractive so long and super good so far.

I am still not interested in companies that aggressively give to the infra sector. The experience has been so bad. The government's investment does not mean that today morning I have to buy a stock related to it. The economy needs some things which the stock market does not need.

Let's talk about the IPO's this year because we've had a great 2020 so far as IPOs are concerned.

The problem with the IPO market is that if the IPO is good, nobody gets it. So then you have to buy it from the market. The first day the stock is up 100%, and you are more slightly, unlikely to make money for a long time. I think that they are not very easy to buy 'cause you will only get the items that are not doing well in terms of allocation, which makes a difference. But of course, one part is participating in the lottery. Because it is oversubscribed some 100 times, but some five people will get it. So please go ahead and do it, but that doesn't work for a fund.

But otherwise, there are many, many companies which are in the not necessarily absolute cutting edge because we don't have that. But as I said, the tech does it. Pharma does it. The best way of analyzing an individual is to look at the Forbes billionaires list. Look at which sectors that come from. These guys have been billionaires because they were able to hold onto large equity and then get acquitted well. And they only come from three or four sectors. They will come from the consumer sector, technology sector or they will come from financial because they're hedge fund managers or whatever.

I want to touch upon two or three pain points, which is basically tourism travel hospitality, which are also consumer sectors, right?

I agree that travel is the best thing for employment and India has a lot of travel opportunities in the sense that foreigners want to come in, for us to increase there, but it's not happening because somehow travel is viewed as a rich man thing.

And I didn't bother about it because there are not many listed companies.

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