Making no bones about the government’s demonetisation drive Helios Capital Management Founder Samir Arora said it will take about 6-12 months for a recovery to take place.
Even though the move has been timed right, the shock to the system is huge and demonetisation won’t solve it in 3-6 months, Arora said. He, however, pointed out that the financial regulation took away momentum that the consumer space had.
In the past 4-5 years, investors didn’t make money in sectors such as realty, pharma and IT; only consumer stocks were profitable and demonetisation has blown away that advantage, Arora said. He cautioned that it will be tough to get that momentum back in 6 months.
From here on, the government’s Budget announcements will be key indicators of a recovery, Arora said. In a departure from the norm, the government has announced that the Budget will be presented on February 1, 2017.
Arora hopes that the government makes sufficient provisions for the poor in the Budget. According to him, the poor lose the most from demonetisation. The rich may lose 30 percent, but the poor lose 100 percent of their net worth, he said.Below is the verbatim transcript of Samir Arora’s interview to Sonia Shenoy, Anuj Singhal and Latha Venkatesh on CNBC-TV18..Sonia: When we spoke last during Diwali little did we know that less than one month from then we are going to get such a shockwave through the markets. But in your interaction with a lot of the big investors in Singapore what has the feedback been so far?A: Actually I have had less interaction with other investors but more with companies and business in India. But whatever I think maybe some others think or don't think but it will be somewhat similar that - forget about the long term - everybody agrees that India had somewhat higher corruption although not clear how much higher and those things are more philosophical but then the shock to the system is extreme and this is not going to solve itself in three months or six months.Latha: How would you parse this move then that it will be a while before economy and markets recover? When do you see that recovery?A: It can take six to 12 months and we can live on the basis that we discount these things six months ahead of time, therefore six months is enough. But my thinking is we can't have it both ways with some of the guys who are more positive on this move which is that either we have large black money or we don't. And if we have large black money then withdrawal of that large black money can't be relevant.The people who are more positive than me - today are not positive from this aspect is that the money is large and we will take it and the government will take it but on the other hand it won't make any difference. So, what does it mean, that means that money was all lying in an account, had no influence on transactions, had no influence on wealth effect and nothing, you can't have it both ways is what I think.Anuj: So, in that are you pretty sanguine that the big correction that we have seen is entirely because of demonetisation because we have seen global headwinds as well for emerging market (EM), dollar index has strengthened.A: But that would make it more scary. Actually this has been brilliant timing by the government and it all got mixed up. And I can have any bet. Not the first level investors that is who are themselves fund managers into India but like investors in my fund or in other funds won't know exactly why he anyways have fallen. It looks to everybody as if it is a big picture, emerging market game and actually in some sense what you are saying won't make you sanguine, it may be more scary that today's move or move this month so far is more or less just because EMs are not because of our issues.Actually I will tell you, it is very simple. If you look at last four-five years did anybody make money in capital goods, no. Infrastructure no, real estate no, IT broadly no, pharma broadly no, anything no, only it was consumer and financing of a consumer and now you have blown away that part for the short term even if it is. Suddenly to think something else will move it is quite bad actually. That is what I feel.Sonia: So, what do you do with some of these consumer stocks, some of these auto stocks, the financiers because most of them have already fallen about 20-25 percent since the news flow, what do you do now?A: That I agree. But if you look at these consumer stocks they also have the highest valuations. Some of them we didn't have but generally, they always have had higher valuations than the rest of the market. Some of the Non-Banking Financial Company (NBFCs) which we had have, may have whatever, also had higher valuations were also up 30-40 percent year-to-date (YTD). So, you please tell me that the 20 percent correction should be looked at or the fact that they were up 40 percent YTD should we look that because the thing is that then you are looking at very high relative to market and even in absolute earnings expectation and you bang them against the wall for one or two quarters do you think in the third quarter it starts going again at 40 percent that. Because nothing has happened on time in the world, not only in India but in the world. For how many years we thought that we are about to have turnaround in capital goods and in infrastructure and then in this. It happens too slowly and now you blocked one momentum. So, it can't reverse in 3-6 months.You are right, maybe the 20 percent fall is enough, maybe that discounting happens six months ahead of time and things like that but to me the momentum has been shaken up a little bit and that is sad because that was the sector doing well or groups that is consumer plus financing of the consumer and that was actually the only sector doing well.
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