Samir Arora, Fund Manager, Helios Capital believes domestic investors are likely to miss out on making some good money due to their cynicism. He says the market is witnessing a "big bull run" and there is no point in waiting for correction.
"The best example I can give you for that is HDFC. That at a 2-3 percent discount suddenly 850-900 million people are willing to buy as if all they want in life is a 2 percent discount to satisfy their egos that we want to buy things at a discount or Cairn, which people bought some 900 million at measly 5-6 percent discount. The point is there is too much money waiting on the sidelines but their (domestic investors) egos are hurt if they buy things on an uptick. So they want to buy on a correction even if that correction is 2 percent higher than what it was last week. The point is Indian investors are cynical and they are going to lose out if they don’t join it," he told CNBC-TV18 in an interview.
In fact, Arora says he is fully long and going more long.
"It’s a big change. You either take it or you leave it. But we have not seen such energy from the foreign investors for many years and it is genuinely being rewarded. So there is reinforcement of that flow. But more than that is there is a continuous spat of good news that is coming from the government. It will reflect over time; everything takes time to reflect in EPS but PE does not wait," he said.
Below is the edited transcript of Arora’s interview with CNBC-TV18.
Q: Are you surprised by the markets tepid reaction, would you call it mature?
A: You can call it mature and you can say it is buy on rumors sell on news. The only problem for the market for the people who are not buying it is there are going to be soon new rumors as in there will be soon new events. If the domestic investors are quite cynical and not accepting it and they will be proven wrong.
This is a big bull run and there is no point in fighting for 0.5 percent down and 0.5percent up and waiting for a correction. The best example I can give you for that is let’s look at HDFC. That at a 2-3 percent discounts suddenly 850-900 million people are willing to buy as if all they want in life is a 2 percent discount to satisfy their egos that we want to buy things at a discount or Cairn which people bought some 900 million at 5-6 percent discount.
There is too much money waiting on the sideline, but their egos are hurt if they buy things on an uptick. So they want to buy on a correction even if that correction is 2 percent higher than what it was last week. The point is Indian investors are cynical and they are going to lose out if they don’t join it.
Q: Clearly you have no cash left, you must be fully long?
A: I am fully long and going more long.
Q: Your enthusiasm is generally quite tempered, but today there is a stark change in your view, what has brought this about, there is nothing that has come through which will incrementally affect growth right. So is it purely sentiment driven?
A: Not at all, everything is changing on the ground in the sense that in the last month, if 6.5-7 percent is the currency appreciation that means effectively as if India has increased oil prices by another 7 percent because the deficit will be reduced either way, either by your increasing prices or by their laded prices coming down.
The spiral that you get from things which do not immediately reflect in earnings is still quite substantial. For example, if tomorrow or after a few months because of this rally, the finance minister is able to sell stock in divestment - it may have nothing to do with any underlying company changes immediately but then that encourages the RBI to cut interest rates.
So, the whole thing is that you should be seen as in the government as pro-active and taking decisions and that is what they are doing. In the first month to say that this is not reflecting in earnings, it will not. But there are many IPOs you would buy, many projects their private equity buys where there are no earnings, but only a path towards improvement or progress or implementation and that all is already happening.
Q: So for people who are not invested in this market and who have missed the bus where do you see lucrative opportunities now?
A: That beyond a point we don’t say, but broadly we are in the financial sector and now we feel that the digitalization media theme is a big theme. The big picture point is that we are unnecessarily finding issues with the market. I read a report today that some strategists are not able to calculate that how much money came in September because it did not total under the headings of FII and sovereign funds, so it is some unexplained money.
Let us say this unexplained money means it is Indian guys money and it is the politicians money that means the insider is also buying. Whether you can be pure that unless I count my boxes because if I know because it is an FII I will feel better, but if it is sovereign fund my model says it is wrong, it is over analysis.
The point is it’s a big change and you either take it or you leave it, but we have not seen such energy from the foreign investors for many years. It is genuinely being rewarded so that the reinforcement of that flow. But more than that is there is a continuous spat of good news that is coming from the government. It will reflect over time, everything takes time to reflect in EPS but E does not wait.
Q: Hence the doubts whether here after it will be a little tough for the markets to climb the way they did in the last 2-3 weeks.
A: No, they should not climb at the rate at which they climbed last month and that is not what will be the only criteria for the foreign investor. If it goes up only 1.5 percent per month they will be satisfied. Let us not say that will it be as good as September, obviously not. Where in dollar terms it was a 15 percent, but if I say will it be up? Let's simply forget it.
Therefore a 3 percent discount overnight a new demand of 900 million comes in. Let us say that half these guys wanted a big size and therefore they were waiting for this event of having a big quantity, but some of them just bought it because there is a discount.
That means people are happy and satisfied with the 2-3 percent gain that they can make over a month. If you think that you can make one percent per month, not smoothly but 12-15 percent, you can get 20 more billion because now-a-days the world does not offer you even 12-15 percent return with a little bit of visibility.
Q: Would you say that this is perhaps the last of the years when we will see an earnings decline in this cycle, would FY14 be an earnings uptick cycle, an incline in earnings growth?
A: It should and also it should be due to PE upgrading because interest rates will definitely decline. Sometimes if currency is strong, some sectors will do well and if it is weak some sectors will do well. But the investors should see a path that there is progress everyday relative to previous day.
Q: So would you say we are poised to reach new highs in early FY13?
A: New highs in rupee terms - you may even get this year, 7-10 percent away, but the issue next year is that the following year there are elections. If elections had been another year away, you would have had a massive run next year.
Now there will be that confusion about whether they will become populist? I think they will become a bit populist and that will be part of the strategy that you raise money through these tougher measures now, through attractive investment, by selling divestments and then use it in more targeted areas in terms of subsidizing the real poor rather than subsidizing the middle class which has two cars, but wants a subsidy on petrol.