I am still very bullish on markets, said Samir Arora, Founder & Fund Manager of Helios Capital in an interview to CNBC-TV18.
He also shared his readings and outlook on the market and specific sectors.
"People generally do not start making money from the first month or first year they invest, so they have to pay a learning fee," said Arora.
He does not think geopolitical tensions will be taken so seriously.
According to him, part of the July rally was due to forced short covering.
On Securities and Exchange Board of India's (Sebi) order front, he doesn't think Sebi decision on shell companies is serious from macro perspective.
We have been short on pharma for more than one year, said Arora.
Below is the verbatim transcript of the interview.
Anuj: Just going through one of your treats. You have been very sarcastic over the last two weeks about the market rally. So, one of those imaginary conference calls, we had poor results, margins were down, weak next quarter, but should be okay, why? Because domestic mutual funds are getting a lot of money. That was the whole point of the rally right, all through the last month?
A: I think you are being very unfair when you call this a sarcastic tweet.
Latha: Actually I agree with you. When you were last with us, you made it very clear that even in 2007, domestic funds were coming, foreign funds were coming and still the market corrected. You did warn us that funds can stop at any time, but what are your thoughts? You thought this got too easy?
A: No, I did not say that. I am still very bullish. All I was saying was that do not use that as an argument forever saying that because we had new investors coming in and because they are waiting on the sidelines, nothing else matters. I still think they are there, but they can stop at any minute and even though I may not pre-empt it, I have to accept it that in a sense this portfolio has not been seasoned.
So, people who have made money for three years, will their inclination be to protect this if it falls or will there be to add more, we do not know. But, knowing in general, markets, the takeaway is that people generally do not start making money from the first month or first month they invest. So they have to pay a learning fee. And this last round it has happened that the new retail investors, in theory, I do not know whether reality or not, but they have made money and they think this is the best thing that has happened.
Normally, it happens on the second cycle, third cycle that people would realise that we should not sell because last time when we sold, it was a wrong decision. But we do not know what they will do in the first correction. But it does not mean that I am already preparing for it. I was just saying that should not be an excuse for everything.
Latha: What is your sense for the markets now? Do you think there is potential for things to get much lower? After all, there is geopolitical noises coming at regular intervals. Are we looking at another 5-7 percent of cuts?
A: 5 percent cut you cannot overly plan for because last one month, on a technical issue, where the regulator forced all p-note guys to cover – something that was going on for 15 years in three weeks made the market go up 5-6 percent which may have been otherwise, maybe a 1 percent up market. Who knows whatever it would have been?
And therefore, if you give up that 4-5 percent, you cannot overly analyse it. But right now I am not thinking that these geopolitical issues are suddenly very serious. This was said in bravado and that is how this world works, but I do not think that will be taken so seriously. In India's case, I am not going to be overly negative. Just to tell you my net was seriously still very high at about 68 percent.
But my thinking is that in one or two months, we will say that our last quarter will be very good because – I do not know exactly when Diwali is, but it must be in that quarter. And therefore last year was bad because of demonetisation and stuff like that and again, now we will have a good year or a good quarter. And in general, flows are still there, right or wrong. So I am not turning negative-negative, but if something goes negative, this can exaggerate the issue.
Anuj: That was my follow up. Do you think the July rally that we had was entirely on that forced short-covering and we discussed this. When you remove markets of shorts, in that case, at lower levels, there is a bit of a cascading impact. Are we seeing that right now, technical positions getting unwound?
A: I would think that part of the rally was because of a sort of a forced short-covering. If something has been going on for 15 years and you do not know exactly what is the problem, the market could have been given three months. The world would, I can promise you that heavens would not have fallen if we had got three months to cover, or whoever had to cover. So, unnecessary doing it in 15 days for what purpose, no real purpose to do it. So that obviously led to short-covering which weakens the market.
Reema: Your thoughts on SEBI's move to target these suspect shell companies and the way they have gone about it, and is that a reason for the deleveraging that we have seen in the midcap space right now?
A: What I have learned is that in our world, nobody cares about another guy. Everybody cares about themselves. So for example, when P-note guys were being forced to cover shorts, nobody said whether it is good or bad. They said good, the market has gone up, so we are happy. So we do not own any of these 331 stocks so I should feel happy.
Good I do not own any of them, somebody else owns it and they did not come and support me when I was thinking that why are we being forced to cover things in three weeks. So at first level we say we are not concerned, but on second level, we now find that five, seven or ten stocks are not really shell companies, but are slightly better than shell. So maybe those companies will, but I do not know exactly because some of them were really wide companies and whether really the public was owning them or it was only promoters and their friends, who would know.
But it is in everything in life. Some guys become unfair victims. I have seen that in my whole life so I cannot say that nobody will ever fall victim to some big-picture thinking that somebody has. But I do not think it is a super serious issue from a macro market move.
Latha: Your old love, non-banking finance companies (NBFC), they remain your favourites or are you picking and choosing with greater care now?
A: We have always chosen them with great care and so we have all of them, yes.
Anuj: One more tweet which you recently put out that never getting into this contra buy or sell business. But pharma right now, are you buying any stock here?
A: Before that, I say that in humour, but please note that we have been short pharmaceuticals for more than one year. And IT of course, my interview with you was last year in June or July. So it was contra actually. But what I meant by contra is it was not going up everyday then for me to have felt that I was doing contra.
It was a regular stock that was going up or not going up and we said we do not want it and actually we want to be short. So been short pharma for one and a half years maybe. But I was meaning only that today, it has become an issue of ego that this stock is down 40 percent but if I buy it, suddenly it will go up. Maybe it will go up 2 percent. But philosophically, big picture, the problem has emerged this year.The problem is actually one week old in the US in terms of Teva and all that. For us to say, we have money. So tell me today, in one day, can it happen that suddenly that the market is down, these stocks are up 2 percent as if somebody is absolutely got a gun on his head that you put this money today or we will take it back from you. This also will take time. We shorted last year, the money was made this year. People who put money now may make after a year, who knows. I am talking more of right now, trying to prove a point. I do not think there is any point.