India is a monkey mkt, dumping bullish stand: Samir Arora

Samir Arora, Fund Manager of Helios Capital feels India is like an uninvited guest at the global market party. Bullish or bearish, he says investing in India is like investing in a monkey market where one has to keep jumping from one side to the other. "If I buy something in India, it is not even worth telling because in four weeks I will hate that same idea," he told CNBC-TV18 in an interview. 

Arora, whose net exposure to India is 38-40 percent, says the country's fundamentals may appear good relative to some other BRIC markets, but that is not good enough to attract sustainable money flows into shares.
"Today, the issue is that the corporate results of this quarter will be bad, which everybody agrees, but everyone wants to immediately look beyond it. One can look beyond it, and as we say markets discount six-months ahead of time, if you could say credibly that six-months down the line things will be better, then I am also willing to discount and so will others. But today we can only say that this quarter will be bad, but we hope that six-months later things will be better," he says.
In an attempt to reduce the fiscal deficit the government has cut down so much on expenditure that even the consumption cycle has been hit. More than that, Arora says, the global money has come in but the domestic investors have not shown any matching interest. Therefore, from a market point of view, he feels, something bigger has to happen.
"This year we started very bullish, but we are basically giving up on that and saying we are neutral-ish to slightly negative," he told the channel. Here is the edited transcript of the interview on CNBC-TV18. Q: It has been a difficult patch so far. This morning there is some strength on the screen, but how are you feeling about the way things have moved in the last two weeks?
A: More than last two weeks, I feel that India is like an uninvited guest at a party. There is a big party going on somewhere and you wear a tie and land up there. You can get a few drinks, but then somebody will notice that you do not belong there.
 
Right now, maybe because we know the bartender or because the host is drunk we are invited to this party, but we definitely look uninvited and therefore we have to keep looking around to see whether somebody has noticed us or not. That is the current situation. We are there somewhere near the bar, but trying to keep a low profile so that nobody notices us. Q: What is the call on the market itself? Tactically, would you buy anything at this level or do you foresee lower levels on the index now?
A: Whether we are bullish or bearish what we feel as a group now is that we are more in a monkey market where you have to keep jumping from one side to the other for India. US and all are very clearly positive, if you look at their numbers, earnings or PEs for all these global companies. For India I would say that if I buy something, it is not even worth telling you because in four weeks I will be hating that same idea.
We have some of our old names, but broadly we do not feel good in life. Our net exposure is still okay, it is about 38 to 40 percent. But on the margin if you give me a prompt I would rather lower it than increase it. Q: What is the key problem for people looking at India? Performance has been quite paltry compared to many other markets. Is it the fact that earnings are just not moving? Are they not happy enough with the way policy is and now politics as well has turned into a bit of a curveball or generally is the mood on some of these emerging markets not great?
A: If you look at India’s performance relative to Brazil, Russia, India and China (BRIC) and all, it is in the same range. It is down some 3-4 percent in dollar terms and that is not hurting and obviously foreign investors are still coming in. It is not that they are seriously objecting to the market levels or something by staying away. But, we in India, know what the problems are.
The Reserve Bank of India (RBI) said that there is limited room for further cuts. We know that the politics is quite bad. We know that if elections were held even a few months earlier, we expected them initially in March and now they are held in December which in anybody’s mind would not be a big change. But, that would mean that diesel price hikes will stop after six months because nobody really expects that they will be done the month before and two months before elections.
 
Everything changes if some of these big picture things change. Also the way we look at our reforms they normally always hurt the ruling party. How far will Congress go on its own? Previously, it had a big group to justify these things that they are doing.
_PAGEBREAK_ Q: The problem also with this market is that you are looking at a different market depending on which end you track. Anyone who has been tracking the midcaps will tell you it is a rank bear market from the way we have started off this year.
A: Exactly. The thing is that if 7-8 or 10 stocks hold up the Nifty you can say that the market has already corrected. That is one way of looking at it and therefore, the correction is done or the other is that these 8 stocks are artificially making us feel better than we are. The bottom-line is that there is no interest in this market.
Overall, it is a boring market in some sense because it is so difficult and particularly when the rest of the world has it so easy, particularly US where the outstanding stocks which were listed in India would have 35 and 40 PE are at 15-18 PE, why would anybody come here except people whose job is like that. That is why I feel India is better than Russia, maybe Brazil, but that is okay. We also have played that theme all our life, but we are tired of that. We want to say that India is good per se and we are not getting that story with us. Q: We still have the support from the US markets. They are sitting at all-time highs and what most people point out is that if we did not have this, our markets would have fallen off a cliff a long time ago. What is your view on how the next six months look like in terms of the support that we get from global markets and whether we can still hold our own?
A: The thing is the support that you are getting from global markets is absolutely there. It is basically helping you stay here. It is not helping you go up. They say, with maybe USD 9-10 billion the market is down. That is one of the base case right now, I feel.
Therefore, I am feeling that maybe summer has come early in India. Generally, the thing is that we all need to pass our time, hang in there because we have seen now that even Japan has come back. Hence, there is no reason why one day we will not be back. But, I do not think it is happening in the next six months. The best we can hope for us is that on some shorts we make some money, on some longs we lose money and at the end of it, it is like the first three months where you are plus-minus zero. Then you always have an optionality for the future.
But to think that foreign money coming in would lead this market up or would propel this market is very difficult. At best it can hold it somewhere around these levels. Q: Just a word on the oil space and how you are treating that. That is the only space where policy is moving.
A: I do not think it is moving in any way. The point is that the Budget has accounted for 12 hikes or a Rs 6 hike and if you do not do it in the first month there is no question that we are very bad. In reality, we now believe that you cannot get Rs 12, maybe you can get Rs 6 to 8 hike.
Even the most optimistic on Indian politics, that is people commentator etc. feel that it maybe preponed by three-four months if not more. Let us say, you have elections in December instead of March, anyway they are going to be held in March. If you have it in December, I guess you will stop it two-three months before that. Q: How are you approaching this entire divestment process that the government is going through? Is it at best an irritant where these issues hit the market, the domestic guys pick it up for whatever price and then it is done or do you think this is not setting the best precedent in terms of paper that the investors are being offered?
A: The best way to approach this divestment is to not approach it and stay as far away from it as you can. Basically, for us it is easier because we do not buy state owned companies and we do not buy commodities and most of these are state owned commodity companies. For us, it is very easy. But, we are amazed why people buy so many of them.
An Initial Public Offering (IPO) is easier because in any IPO you can more easily or simply feel that there will be a IPO discount and there will be a pop on day one and that has happened in Coal India and National Mineral Development Corporation (NMDC). But, when you have these divestments of existing stocks, unless somebody claims that he wants USD 100 million of it and therefore, could not buy it on the screen for others, they could have easily done it already.
Coming back to that oil and gas story, my point was that one week ago the state owned companies did not increase diesel prices because of parliament being in session and therefore, it came yesterday which is Friday. It is quite positive, but they did not forget to cut petrol prices on the same day. The thing is that you are not allowed to make money.
You are being asked or allowed to lose less money which is true, but even for a week you are not allowed to make some extra money. What kind of companies are these where the base case scenario is that you will not lose much. But if you try and make any money, you will have to immediately cut prices. These are not companies for stock market investors. But, I do not know, people buy them and they go up and down everyday.
_PAGEBREAK_ Q: As a trigger for the market, what do you think will get this market out of the funk that it is in currently? Most of the things are just playing out as tailwinds now, be it the global markets, be it the reform process in whatever limited capacity the government can do and even the RBI policy. What in your mind is the next positive trigger that could help this market?
A: The positive trigger according to me can be a clear and current situation, not a future that the investment cycle has improved, that investments have started, that somebody has committed, that somebody has asked for new loans, but something which is clear. Today, the issue is that corporate results of this quarter will be quite bad and everybody agrees on that, they feel it and we also feel it, but not as much that we will immediately look beyond it.
You can look beyond it and as we say that markets discount six months ahead of time. If you could say credibly today that six months later things will be better, then I am also willing to discount and others will discount it too. But, today we can only say that this quarter will be bad. However, we hope that six months later things will be better. That is because in an attempt to reduce the fiscal deficit, the government has cut down so much on expenditure and even the consumption cycle has been hit.
More than that global money has come in, but domestics have not shown any matching interest. Therefore, from a market point of view, something bigger has to happen and that will be announcement of elections. There will be expectation about what will happen and maybe some spending prior to elections which may start in five-six months and therefore that may trigger a little bit. But, I do not think it will change the big picture.
It may change the fortunes of some stocks up and down. This year although, I started very bullish and we are basically giving up on that and saying we are neutralish to slightly negative, not necessarily because the government has done something wrong, but the confluence of all these different things that the domestic guys do not want to buy, that the insurance companies did very badly in their investment for five years, on the same logic that other people come and say that look at the long-term, do not look at one week, one month, look at long-term.
These guys invested five years ago for the long-term and now people do not like that long-term attitude that they had, maybe the end results are not good. So all these are adding up to a market which is seeing bad results. Policy action is there, but not all of that policy action will immediately help companies. You come up with these new things.
Last week they came up for your sector and said broadcasters cannot show ads. They cannot do sidebars, whereas for USD 4 they expect these broadcasters to show 200-700 channels to the Indian public. They are now attacking the telecom companies because maybe they did not land up for the auction and therefore, they feel that these guys have cartelized or taken advantage or are pushing us. There is anger all around, between both the sides, that is corporates and the government. Q: The only trade that has worked so far this year is IT and that is pretty crowded as well. Do you reckon that it is still the best space to be in and it can continue to outperform this way?
A: We are also there in two or three stocks. They are okay in absolute and relative terms. The fact that the US market is doing well and US economy is doing better, we have an indirect way of playing that within India. So relative to others, I would also agree that IT is a better sector to be in. Q: How do you function in a market like this one on the point you were making about exhaustion on the screen? In some ways, it is more dangerous than when a market is falling in a straight-line. Then you have some kind of closure once the selling is done and you can take a studied call. Are you trading this market? Are you going back to your defensives? What are you doing right now?
A: The thing is that normally we have a 60 percent net exposure which comprises of 90 percent long and 30 percent short. We have even reduced that gross as we call it, which means our 90 long is more like 75 long and 30 short is something like 35 short for a net of around 40 percent.
The idea is that we have reduced the risk by not having a big book because we will then lose on currency along the way if we are exposed to the market on both sides. Overall, we are exhibiting a very low activity portfolio. We are highly bored, not willing beyond one or two names to meet new managements to discover new midcap stocks and basically rejecting everybody in a sense, without saying not interested, no energy.
That is what has become not only of us, but of this market. If you see the sell side, stock coverage has been dropped from the sell side because the number of people are reducing on the sale side. Basically, Dr. Manmohan Singh said 5-6 months ago that we need to revive animal spirits. Animal spirits literally means that you have an urge for action rather than inaction, that you will do risk taking, you will not be overly bored with life, you will do things which make limited sense, but you do it because you are in that mood.
Now the direction is more of inaction, but you want to be there because you still believe in the long-term, you believe that India needs a few things to put in place. You do not want to give up that, but if you consider a 6 month horizon or a 9 month horizon, you can be excited about buying Google and Disney maybe. Q: The beginning of the new fiscal might see the return of some sort of government spending which was curtailed in this quarter in order to meet the fiscal deficit. Do you think that it would in anyway spur some of the stalled projects and perhaps could bring out some kind of opportunities in the infrastructure or the capital goods space?
A: It will definitely alleviate some of these problems and it will be a good start in some sense. We get confused like everybody else. Whether people will then say have you spent too much, is your fiscal deficit out of control, are you not keeping to your limits will definitely help a few companies, but who wants to buy them because they will get some old money back. Do you really believe somebody has not bought Nagarjuna because he has some bad debts? You are not buying it because he has no business and if I look at infrastructure from a private equity angle.
Why should anybody invest in private equity and infrastructure because your best case is that these projects happen on time and if these things happen on time then the whole country is flourishing. Since things are happening on time, government is taking decisions, approvals are coming on time, everything is happening well.
So going into that, today in this environment if you saw yesterday’s interviews on Aaj Tak and others, we have Akhilesh Yadav talking about a third front and saying we will pull off the support from United Progressive Alliance (UPA). It is not clear who will win, who will lose. So it is not clear that within six months everything will be hunky-dory.
In theory, you will still be in old private sector banks, consumers, pharma, auto, tech which are higher quality dependent on Indian growth, but not outright beta and outright change in reality on the ground. They need a little bit of sentiment and little bit of change. We will not go into infra or capital good so easily, except for whatever we have, with which we are not happy.