Robust rally in '12 but why is Samir Arora still skeptical?

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Robust rally in '12 but why is Samir Arora still skeptical?

Indian market kickstarted the year on strong note. Even after gaining almost 11% alone in January, it has not managed to woo Samir Arora, Fund Manager at Helios Capital. Though he has toned down his bearish outlook, he is still skeptical on Indian market.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets

Indian market kickstarted the year on strong note. Even after gaining almost 11% alone in January, it has not managed to woo Samir Arora, Fund Manager at Helios Capital. Though he has toned down his bearish outlook, he is still skeptical on Indian market.

In an interview to CNBC-TV18, Arora said, "I have still not turned to being fully bullish because if I look at either the world markets or India and stocks within that, the stocks that have gone up the most are the stocks which got hit the most but unlike in 2008 and 2009 when I believed that India had been unfairly hit."

He feels that the world markets may rally further only if the Greece default is averted. However, there are dangers of a sharp fall in the event of a negative surprise, Arora pointed out.

According to Arora, the current rally is led by deployment of existing cash with Asian funds. He is also hoping the Budget and the ongoing state elections results to be key domestic triggers for the market.

Talking about power sector, he thinks that coal issues will continue to be a major trouble maker.

Below is an edited transcript of his interview. Also watch the accompanying video.

Q: It's been a terrific come back, how are you approaching it now after the big rally?

A: I myself was quite bearish in the beginning of January so missed the first few 7-10-15 days of the rally. Since then I haven't bought into it but I have rented it, in the sense that because many shorts went up a lot and we covered them and after that we even bought few stocks.

In my portfolio I am right now bullish because I have very high net relatively even in absolute but in my mind I have still not turned to completely bullish. This is because if I look at either the world markets or the Indian markets and stocks within that, the stocks that have gone up the most are the those which got hit the most but unlike in 2008 and 2009 when I believed that India had been unfairly hit.

Last year we didn't think that India was unfairly hit, there were actual problems in India and those problems were not there in the main parts of the world and therefore the world did not have such a big fall.

Right now the market is looking at it as something like the 2009 event where the market after being up some 22% there is still lot of momentum and we are also party to it nowadays at least for the last 15 odd days. In my heart I still feel that this is not the same as '09 because in '08 every market fell, here broadly only India and few others fell and we thought at that time was well deserved but it's gone up and going up.

Hence, have postponed our bearishness or conservativeness for few more weeks than we see how it goes.

Q: What about the money talk that we have been hearing? A lot of people point out that most of it is courtesy Europe and investors in Asia generally still very cautious what exactly is happening with the money we have been getting?

A: The money you will get for a few months because if you are underweight on the index, if you already have a fund and you are underweight on one market versus the other, so that is all good. But even last year if one looks the outflow was nothing compared to the fall and this year you may say that the rise is consistent with the flow but many times the flow exaggerate.

For example in 2008, the net flows into the market were positive; if you added FIIs and domestic funds. At the end of the day how does it matter to the market where the flows come from, be it foreigner or domestic but it mattered because the market was down because foreigners had sold in the end. So pure money doesn't matter but maybe the style with which the foreigner buys exaggerates the moves.

Therefore I am also playing it like that which is right now to postpone any bearishness till near budget, near results of elections etc and then its possible by that time global liquidity is not exhausted but is sort of taking a pause

Q: How much more would you give it, you already had in dollar terms a very meaningful rally at some point will you start checking out or do you think liquidity can surprise on the way up?

A: Let me tell you exactly what happens to us in terms of problem and how we have resolved it for the moment. Although on the long side we are always fully invested on the short side we had many-many high beta names so for the first 5-7-10 days they pained us.

Since then the only thing we have really done is move those shorts but maybe it won't happen today or tomorrow. These stocks whenever they fall we are going to be there maybe two days later but these stocks will fall a lot more once unless everything gets resolved and we will know it.

The reality is if you look at the power sector for e.g. and all the demands of the power sector this is basically a zero sum game between the power companies, Coal India , NTPC , State Electricity Boards and the public in terms of the fact that you cannot produce coal from thin air.

If it is to be imported and there is a higher price for it somebody has to pay for it. If you look at it today it says that Coal India will be forced to give a higher FSA to the power companies and if Coal India has to give that there are certain price then either Coal India takes the difference and makes a loss or it is passed on to the SEBs and then they make a loss.

Therefore the financials take a hit. but it cannot be that these kind of problems can be solved in absolute, it can only be a way of passing from one group to the other. Therefore for everything to go up and for anybody to think that even the government is strong that who should they choose as being the beneficiary of these renegotiations and rearrangements and who should be hit. It is not anybody's case that the price of Coal when imported will not be high and therefore somebody will not have to pay for it. But right now our market is unwilling to engage as to who will pay for it in the end.

Do you think the State Electricity Boards will again be asked to pay higher price then what was contracted or is it that the issue will become that the financial companies will get a hit because these projects will default or whatever but somebody has to pay? Right now every stock goes up when these kind of things happen and therefore we feel that we are not short today so we just wait but it is a bit unrealistic to think that.