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Mar 10, 2017 03:17 PM IST | Source: CNBC-TV18

UP election results to have marginal impact on mkts: Samir Arora

Even if BJP wins in UP, life for investors will not change much, says Samir Arora, Founder & Fund Manager at Helios Capital. On the other hand, if BJP disappoints then it would have mattered only for few days.

Even if BJP wins in UP, life for investors will not change much, says Samir Arora, Founder & Fund Manager at Helios Capital. On the other hand, if BJP disappoints then it would have mattered only for few days.

Arora further said that global markets are doing well and foreign investors are showing interest in India.

On a probable deal between Bharat Financial and IndusInd Bank, Arora said that companies in India need to openly say that they are in merger talks, like the US.

Below is the verbatim transcript of Samir Arora's interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.

Anuj: Are you more bullish now than you were when we spoke last time? Market is almost back to all time highs?

A: I think we spoke last time on Budget day by which time I was okay. In the first two weeks of January basically because of the positives that came from liquidity side initiative and then the results, I have been okay since January 10-15.

Latha: I wanted your reaction on the exit poll numbers. Looks like it is a land slide for the Bharatiya Janata Party (BJP) in Uttar Pradesh (UP), how does that change life for an investor?

A: They may not change but may continue or sustain rally. I would have thought that if BJP in UP has disappointed in terms of these exit polls in actual, that would matter only for a few days if the rest of the world is strong and stable because I don’t think that even if -- now of course they have done well, which is great for market and everything else -- but if they wanted to disappoint in the actual results or otherwise, you could not draw conclusions from that about what happens in 2019.

This is still a very specific issue at each state level. So the fact that they win is great for everybody but even if they had not or that is not happened yet, I don’t think that alone would have punctured the rally but maybe it would have paused it for a few days provided the rest of the world continues to be strong as it is these days.

Sonia: One of the stocks at the moment is Bharat Financial Inclusion. It has gained about 2 percent right now, the volume action is quite strong here. This is a stock that has almost doubled over the last three months and now we are getting news from IndusInd that they are not denying the merger or any kind of expansion, in fact they are saying that they are evaluating strategic opportunities. We were discussing this yesterday as to why would a company like Bharat Financial give weak guidance at a time when there is a possible merger coming through. What is your rationale?

A: I do not know. I do not own the stock but I find it amazing that a company comes in the middle of -- if it is, first of all who knows whether it is or it is not -- but if it is in the middle of being taken out to come and give negative guidance, it is almost as if the bidder has -- let us say if it is InudsInd -- has said that its numbers are so bad, I want you to declare them before I would look at you or finalise with you but it is amazing from a company’s point of view.

I think it is worthy of a book because let us imagine what are all the possibilities of why somebody would come one day before and let us put it in a different way. Let us say we are buying a gold company where we think that the company has lot of gold and it will discover in a mine and the company knows that there is no gold or finds that there is no gold and they come out saying sorry, there is no gold in this mine and crores of shares trade and many people sell and many people buy and two days later, they say but in the same mine we found some diamonds but the conference call was about gold because that is where your expectations were.

So in the middle of an event, talking the negative part can only be idea to bring down price, which I hope that is not the intention or secondly because the bidder said that your numbers are so bad but I feel -- because we are owners of IndusInd for the last seven-eight years since 2009, I think they are building out, I don’t agree with them because right now, the premium is already built in.

In India, we have another problem that companies only say when the board approves. They should openly say that we are in talks like they do in US and then the talks fail but to say the board has decided. Imagine if every sensitive information was only when the board approves. That means the day before board approves, the company can do what it wants. So I am in disagreement with the whole thing but more than that it is interesting more than anything else.

Anuj: What about fund flows, we have seen some FII flows returning, do you get a sense that this could be ETF driven, we have seen off late quite a bit of ETF money into the market, what is your sense of that?

A: If you look at the days when the market was weak, I think the last one or two weeks, I saw that the market would only rally from 3:00 to 3:30 or the end of the day which broadly is ETF kind of money which has to buy necessity in the last half an hour to match the price. So, it must be that, but overall flows are there. Of course we have had two deals, or whatever that one deal of Kotak and others, so, generally that means FIIs are otherwise also interested and they should be because they are investing everywhere else to.

Latha: You said that you own IndusInd. Now everything is good at a price, at what seven IndusInd shares for 10 SKS are you okay, six IndusInd shares are you okay or are you not okay at all?

A: Actually I am not okay because I think there is an in-built premium. I don’t care in the end, I am not going to sell IndusInd on this basis, but I feel that you should not be taken for a ride and you are being taken for a ride here because the fact is that the stock has gone up on this rumour and to now say that we want more premium from here is what I would like as IndusInd. If was a Bharat Financial owner which I was for many years, three to four years, I would have said that it should be done at market price. So, don’t worry about me.

That is why I don’t feel so much whether it gets done or not, I feel that there should be an answer as to why you would guide this market down one day before it leaks that the deal is about to happen in 5-10 days; that to me looks -- there is no explanation for it because the purpose of a guidance down is because the company feels that the share price imagine something and that is not happening, so, it is our duty to bring fairness to that price that there is some hype built into it, therefore we must bring down the expectations. However, I don't think that I am going to sell IndusInd on this basis.

Sonia: D-Mart has got a sort of a star status in the IPO market. Today is the last day and we hear that a lot of big investors would be pumping in money today, are you one of them and are you recommending retail investors to do the same?

A: I am not pumping in only because my cost of buying in an open market is very high because we have to put in as foreigners, so, there has to be a currency hedge, so, the cost -- because the problem is that whatever we apply for, we want to get maybe one over 200s of that. So, what do you do with how much should you buy to be able to get a meaningful amount in the allocation? Therefore, from that angle I am not applying. However, I am hoping that it doesn’t open more than 30-40 percent higher and then I would buy that day. However, it looks that it is going to be a hot stock today and it will be hot on opening and if it opens too much higher then we will unfortunately not be owning it, but it would be a great one to own I would think.

Anuj: What would that mean for markets because we had that Snapchat IPO as well in US and that huge listing that it saw? Anecdotally sometimes these big listings happen at the tail-end of a market rally, at least in the near term. Could that be a bit of a risk?

A: No, I don't think so. This one is going to trigger a correction on its own account because it is actually a good business and very good numbers and you can imagine a very good opportunity in India, so, it is not something which looks like some hype that has been created. We know that a few IPOs did lead to - not lead to, but were coincident with a fall in the market. However, if I were to think that right now, there must have been many other IPOs which were done from the middle of the rally or at the start of a rally.

So, I don't think that this stock should be considered as creating unnecessary hype. It is justified, although the people will not make enough money because the magnitude of allocation that you will get, relative to whatever be your own personal size, it will be very low to not make a meaningful return.

Latha: If you look at the manner in which the global economy appears to be reflating, yesterday’s Draghi’s statement that he is guiding up the GDP and the inflation, and of course the US Fed likely to hike primarily because they see good job numbers, they see an economic recovery, are we in something like the 2009 situation where we saw a V-shaped recovery in markets?

A: Ridham Desai believes that it is too aggressive to imagine but anything half of that, one third of that would be considered equally good and there would be no change in portfolio if it was even on third as good as 2009. However, in general, I have put a lot of my money in US recently in the last two to three months and the US financials, US banks, and all are on a tear there and for every 0.5 percent or 1 percent rise in interest rates, their profits go up like for JP Morgan maybe a USD 1-2 billion for every 1 percent.

So, it is a momentum but there is a logic to the momentum. Generally the world is doing well so it can continue. However, let us not imagine to 2009 because last year was not like 2008. Half of the reason or 90 percent of the reason why the markets rallied in 2009 was because they had fallen in 2008.

Latha: What I am asking you is, is this a great risk environment?

A: I think it is yes because this interest rate hike we have seen in 5-7 and 5-8, there were maybe 12-14 interest rate hikes in US and it didn’t bother. So, these one-three doesn’t matter right now because it effects positively also many other sides of the same economy.

Sonia: How are you going to be spending your Holi weekend, are you going to be looking to increase your allocation in the Indian markets or do you have better plans?

A: Better plans because Holi weekend you can’t increase so you have to either increase it before or after and we are already at about 71 percent which is pretty high for us and we are happy.

Anuj: What areas are you short on right now?

A: We are forced to be short because we like to be short and all that, but actually this time the mix has changed, so, we are 95 long only which used to be even 120 long, and we are 24 short because many of our shorts we have had to give up on because of the hype around events like telecom and all that. However, there are a few places you can find, doesn’t mean you have to make money.

This is a cheaper insurance than buying Puts and when markets correct which they do, I am going to make a presentation in Mumbai, but I can make for you sometime that in our market for the last 11-12 years, we have seen, we look at all the good funds and we are one of them that the money saved has more value than money earned in a good month and this is not just theoretically but with actual monthly data of each mutual fund which is doing well in offshore fund, it did not matter what you did in a good month of the market. What mattered was how much you lost in a bad month and it is sort of black and white if you see it that even if you save 1-2 percent in a bad month and underperform a little bit in the way compounding works, so, that is the protection we seek, sometimes we may lose in a stalled month but once we accept that philosophy we don’t overly bother.

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