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Feb 07, 2013, 04.31 PM IST | Source: CNBC-TV18

Demoralised but not giving up yet, says Samir Arora

The price action for the last few trading session has been depressing and most investors are feeling a bit demoralised, says Samir Arora, fund manager at Helios Capital.

Samir Arora

Fund Manager, Helios Capital Management

Expertise : Equity - Fundamental

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The price action for the last few trading session has been depressing and most investors are feeling a bit demoralised, says Samir Arora, fund manager at Helios Capital.

Arora, however, feels the good part is that the market is not falling apart even if it has not been rising. In fact, he says, for foreign investors this year has been "okay" in dollar terms.

"India is up some 4 percent primarily because of the currency, but whatever it be right now, it seems to be okay and we are going to all hang in there till something really bad happens, which doesn’t seem to be the case right now," he told CNBC-TV18 in an interview.

Today is a big day for the market, or more importantly for the government, as the NTPC offer for sale (OFS) hits the street. At the floor price of Rs 145, NTPC stake sale could garner over Rs 11,300 crore to the exchequer, making it the biggest disinvestment so far this fiscal. The government proposes to sell 78.32 crore shares or 9.5 percent stake in the country's largest power producer.

This time around the deal will happen without much support from an LIC , Arora believes. "I am betting that that would then take some pressure off the selling from the Indian insurance companies," he says.

Below is the edited transcript of Samir Arora’s interview with CNBC-TV18

Q: Price action has not been encouraging for the last 10 days particularly in the broader market. Have you tempered your bullishness after looking at the screen?

A: It is definitely demoralising to see how the broader market is behaving. We are still quite bullish. One reason we can say is that the Indian institutions have sold prior to divestments. If these divestments happen without their active support like it happened with the previous issue of Oil India and if today National Thermal Power Corporation (NTPC) happens without all the money of Life Insurance Corporation of India (LIC) being used maybe they would temper some of that selling because it doesn’t look that it is mutual funds who are selling as much as the insurance guys are selling.

But in a big picture sense everybody is a bit demoralised. It is true that markets are not going up, but they are also not falling apart and infact for foreign investors in dollar terms this year has been okay. India is up some 4 percent primarily because of the currency, but whatever it be, right now it seems to be okay and we are going to all hang in there till something really bad happens, which doesn’t seem to be the case right now.

Q: Are you going to put in a bid for NTPC today at Rs 145 or let is pass?

A: No, we don’t do all these things, but we would be very happy if that happens well because not only then the government’s numbers are met, but that the deal will happen without much support from LIC. I am betting that that would then take some pressure off the selling from the Indian insurance companies. We don’t buy all these state-owned companies and stuff like that, but that’s sort of an independent issue.

Q: Are you getting the sense that all these offer for sale (OFSs) are going to choke the market a bit though because come March there is nearly three issues and not all of them are best of breed there is things like Steel Authority of India (SAIL) etc. that will hit the market?

A: Some of these will not choke the market because they will not be done. There will be a limit to how much people would buy only because these stocks will have increased weightage in the indices. So beyond a point my feeling always has been that if the stock market is up and is up strongly then only these deals get done. It is not that you start and there is a big deal and those deals get done and the market falls.

First, the markets have to be up. So in some sense, they don’t have to be up a lot, but the world has to be stable, our markets will have to be stable that means the Budget has to be good and then maybe a deal can get done or not done, so it doesn’t matter. But let’s get the other elements in place. The other thing is any case we want large amounts of foreign money.

We want divestment to happen. We want the government expenditure to be down and therefore there are some corollaries of that, some side-effects of that, some positive, some negative. If the basic macroeconomic changes that are happening are right then it is like saying that if government increases diesel price then inflation will be high.

So, it doesn’t matter because the first part was what was required by all theory and so it is the same thing. If these deals can get done let them be done, but for them to happen there will have to be a positive environment around Indian markets, around the Budget, around the world and therefore it is okay then the deal will get done.

Q: Are you sensing any change in sentiment towards India though after January’s performance?

A: We can see purely from numbers that if last month if foreigners put about whatever 3.8 or 4 billion then the index in dollar terms is up some 4 percent whereas the Morgan Stanley Capital International (MSCI) emerging market (EM) is up 0.8 percent. This year if our Budget is good, this seems to be okay. Right now, the people will say that Chidambaram has already said this to us when we saw him in Singapore, Hong Kong or London that does not matter.

It is like saying that you buy a car for your kid and the next day the kid say that what are you going to do for me today? And you tell him that I just bought you a car yesterday, he says but that is discounted. Things are not discounted, things have to be implemented, done, and you have to wait. For Chidambaram to even credibly present in the Budget whatever his targets on fiscal deficit and all - some only cynical guys will say "we already knew it", as if these tough things have to be just said and they are discounted.

We have a positive environment. World is okay. Our earnings are sort of okay. The only thing is that this sector rotation is not working, as in the infra, the cap-goods and all that is really not working. The state-owned banks is not working, which beyond a point we like because we didn’t overly changed that and that might be hurting a few people who moved just because the new year is there, let’s go to new sectors.

We also did that a little bit, but it was with 5-7 percent of our portfolio. Other than that it is okay. Nothing so wrong that with the way Indians are selling is a bit too much.

Q: Is there anything in the horizon which worries you going in with a bullish position about the world, we have got used to USD 3-4 billion a month of liquidity, some initial signs of hiccups coming from Europe. Anything that you can see in the next 4-8 weeks, which can turn the tap off in terms of liquidity?

A: Although Chidambaram said that he favours a stable tax regime, but then the rest of the government guys start throwing these balloons in the air whether excise tax should be increased, whether that for rich people it should be increased, whether estate tax should be increased, maybe some corporate surcharge should be done the tax on ultra-rich like you guys and increase some surcharge people may not bother.

But anything to do with corporate earnings will be a bit of a negative and so it should in the end be what has been presented. There should be one or two more aces, something, which has not been said. Now the only thing I thought till yesterday that maybe one surprise can be that you takeaway the short-term capital gains tax in India for Indians, anyway we don’t pay it. It is coming via Mauritius, Singapore etc and you substitute for everybody with Securities Transaction Tax (STT), which would give more money.

You neutralise it. So, you are not giving a gift to the stock market, nothing, but it will just be a great thing. But then today if I read that they might do STT on commodities then that means it can’t be there for stock market guys you will do it and remove all capital gains and on the other hand you will do it for the commodity guys without removing that. Therefore, I feel maybe that would happen. But you need more surprise so that really nobody can say that he heard everything from Chidambaram before. I hope he has one positive surprise for that day, which then we can celebrate after the speech that day.

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