Real estate correction overdone: Samir Arora

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Samir Arora of Helios Capital had all along shown controlled optimism about the markets. The ongoing bloodbath on the bourses hasn't made him a pessimist. Speaking to CNBC-TV18, he maintained the correction process will get over gradually. Asked about the impact of the recent bribe-for-loan scam on the realty sector, Arora said the sector was notorious for its bad corporate governance.

"Everbody knows that," he said, "But for now a sharp correction in the real estate stocks looks overdone." He said the fact that the loans were not given to dummy companies were reassuring. If someone fails to repay the loans, then there could be some trouble. He said he may buy non-controversial stocks which have corrected.

Below is a verbatim transcript of his interview with CNBC-Tv18's Udayan Mukherjee and Sonia Shenoy. Also watch the accompanying videos for more.

Q: What do you make of the kind of carnage and capitulation we are seeing in the broader market today?

A: It looks a bit irrational considering the news which came out on LIC Housing Finance which looked more a case of bribery than a scam. Let us assume that many of these or some of these companies paid some facilitation fee to a few guys, at least the borrowers' name seem to be in companies, which we would expect otherwise also to have got loans from LIC and other lenders.

Since the US is closed, I am not sure who could be doing so much selling. It doesn't look to me that from whatever we hear from the market that this is hundreds of millions of dollars of selling that is going on, unless there is some hidden problem somewhere because stock has been down 20%.

For the moment, it is confusing, but I am not bearish on this. I was a bit controlled and we should not assume it as our right and money will come in. This kind of carnage is well beyond reasonable expectation, unless there is something else happening which we don't know.

Q: Specifically on the infrastructure and real estate space, do you find justification for the 30% kind of falls or cuts that you have seen in many of the frontline names?

A: Real estate is bad corporate governance and all the corruption in India happens in that sector but everybody knew that. The fund managers are basically saying that we know about it but we don't want you to get caught. This is nothing new that has happened, particularly this thing about loans coming with a USD 100,000 bribe to someone or the other.

If anybody overly analyses it, they would have expected these kinds of things but they are hidden from our sight. For the moment, everything is overdone, although in real estate, the only fear is if somebody, somewhere is about to go under, in terms of not being able to repay loans.

If it is a matter of a bribe, then five or ten guys will get fired and as long as that doesn't show that there is a systemic problem or that the loans have been given to some dummy companies or shell companies, that would be a scare, but not now.

Q: You mentioned you may not be very concerned about FII interest. Do you think perhaps because of the whole host of scams that we have seen, FII interest might weigh in now and we may go ahead and see some basket selling in the market? What do you sense in terms of the overall sentiment in the market?

A: It will come from people who have no understanding of India because if somebody came to India and bought real estate stocks and thought that was all clean and proper then it is their idiocy. At a bigger picture level, India is now up from 7-10% year-to-date, which is more or less the same level as the US.

Definitely, there is a cost to these scams in terms of people delaying their investments or reconsidering one sector versus the other because they don't want an association risk that they hold the stock and something happens to the company. India is doing well and for foreign investors, they will compare us now to other markets but we are not up a lot because of this month.

All in all, in one-two months they will forget and in between the public and the press if it is presented that action has been taken and new people have come into wherever some guys have been caught. The other scam is the telecom scam. There are only about seven-10 guys who got the license. Maybe they will be fine and one-two licenses will be taken away but it is not something which will spread to the rest of the market.

Unlike real estate, where it is a sort of diversified industry and there could be 100s of shell companies in theory or some of them who may have taken loans. In telecom, it is not like that If out of the seven-eight guys; you find a few and take away licenses it doesn't matter to anybody.

Q: Are you buying now using the fall or are you waiting for better prices?

A: It looks like something that should be bought if for no other reason just because you own them and they are down 10-15% and that they are not connected to either real estate or infrastructure and if they are also down 7-10%, something should be bought in that. We may not buy the controversial names even if we feel that this fall is beyond what was fair but there are so many other stocks which seem to have no connection with the current crisis.

Q: If you had to buy specific stocks from the banking space, that have had absolutely no correlation with the corruption scandal whatsoever, would you go ahead and buy at this stage or would you wait for a bit?

A: In banking, historically, we have always bought private sector banks, which have not fallen as much as a state-owned bank. For me, personally, I will have to first check with my analyst as to which one we like because normally, we don't own any of them at any point of time. We only own private guys.

Real estate we have never owned or haven't owned for a long time and we are short a few. That fear is there since the midcap index is down some 4-5%. There cannot be something so new which has connected all these companies simultaneously in one day. That looks a bit unreasonable.

Q: Do you see more downside given this environment or do you think we are more or less getting done with this leg of the correction?

A: I think we are getting done because the rest of the world hasn't fallen. If you look at our own events of last week, the fact that Congress lost in Bihar, it is a huge positive in a macro sense because that would drive home the point that - stop doing all these other things and concentrate on business. We have two new Chief Ministers in AP and Maharashtra and if now also these two new guys don't do anything that would be a shame.

On the other hand, the fact that there has been such a recent lesson from Bihar, we would hope that it would mean more work being done, better governance, more facilities and infrastructure, whatever is needed. In some sense, it is like a mid-course correction for the Congress as well to say - let us concentrate on business.