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How will markets move in runup to Budget after elections? Samir Arora answers

1 month ago 39

"I think the Budget will be very good because it will be related to divestments. I think it will be related to unlocking of real estate, of PSUs, I am just doing big picture that you cannot make it transformational and simultaneously cut the deficit," says Samir Arora, Helios Capital.

What is keeping you busy these days?
What is keeping me busy is the overall excitement of the market and the fact that now we have more interest in the offshore funds, mutual funds. So, there are a lot of things to do. Basically, I have always wanted to lead a busy life. So, when I joined my first job, my only criteria was that I should not have to look at the time and say 5 kab bajege ya 6 kab bajege, so that is what I have done all my life. So, it is good.

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If we see Helios Flexi Cap Fund holdings it has not even been a year and the return I think is in the top quartile.
It is for five months.
Yes, I am saying it is not even a year and it is the top quartile. So, I mean, it has been a great start. So, for Samir Arora and the investors of Helios, they need to understand from you where things are headed. In the near term, do you think we need to step back and look at the global setup, which frankly is not very pleasant on the macro side and also on the geopolitical side?

I think macro still is okay because you can always live on hope that after six months there will be interest rate cut and all that does not really matter beyond a point.

Because the reason why the US is not having interest rate issue is if the market is strong, if the employment is strong, then that also is a good enough label to say that these are good macro.

So, the question is about the geopolitics and the language that is used by both Israel and Iran and I am happy that the world that is led by US and others are trying to put pressure to say cool off guys, particularly to Israel. But that is an angle.

But those things, it is very-very difficult to predict and what will you do today because even if we say there is some chance, do we make it 10% cash say in a long only fund or reduce our net by 5-10%.
So, some of these you hope that things work out. And if not, you react fast. Maybe you will miss the first 4% fall, but then you have to interpret that day. But I agree that the geopolitics and the language and the tone is not good.

You have been maintaining this view that forget elections, start talking about budget.

So, how do you see markets now moving in the run up to the Budget? Do you see volatility or you see markets will remain firm?
They may be volatile, but I think that the Budget will be good or that at least till that day we have to be excited about it considering the language and the tone of the message from the Prime Minister himself about it being a transformational Budget. He talked about the first hundred days and about the steps that they have to take, plus separately because the real Budget was not there except that it guided for a lower fiscal deficit, that also is good.
But to convert the big picture plan into an operational plan means according to me that you will have to do divestments of some PSUs, sort of lock, stock and barrel.

And there is one negative niggling thing which is what if they try and change the capital gain tax definition and structure. But if they do that, then everything else would be washed away.

So, we say, please do not do that. But if they do that, it will be very negative and neutralise everything else. So, if they do not do that, then I think the Budget will be very good because it will be related to divestments.

I think it will be related to unlocking of real estate, of PSUs, I am just doing big picture that you cannot make it transformational and simultaneously cut the deficit.

Because if you say I will cut the deficit by reducing capex or reducing subsidies, then it is not transformational. Transformational means actually unleash some new investment into new themes or new sectors by doing selling of some of your assets and then investing it somewhere else.

And at the same time, bring in Tesla type guys by whatever changes have to be made in some taxes or import duties or whatever.

So, so far you have to go excited. It is the easier course to take. There is nothing wrong separately in India for us to feel negative in any way. This idea that Indian valuations are very high and all is all nonsensical stuff by all these guys who come to India for four days.

Like yesterday, there was a story. Basically, we know it is expensive in consumers, so do not buy it, underweight it, rest of it is not so expensive in any case relative to our own history.

Every three-four years there are big themes which are born and if you latch on to those themes and say, okay, I do not care about what is happening in the world for me, this is a big theme and I am very happy with it. I am going to draw this perspective that why I am asking this question to Samir is he bought into private banks. He bought into retail. He bought into IT. So, these are these mega trends which we talk about.
Into Bharti.

Lot of these mega trends.
Varun Beverage. But the thing is it is not easy but they come up. You do not have to think of them. For example, where in my whatever number of years you have been taking my interview would I have ever been able to say till we did it that we will be buying HPCL or something at some Rs 235 price. These things come with time. You just are there. Basically 80% of the fund does not change, that remains in whatever thing.

But for example, out of the blue or not out of the blue but you should say with deep research and consideration we decided to make our IT zero.

But I could not have thought of that six-nine months before that it will become zero weight. So, do not ask me like that because there is no big picture theme that I will go after.

But you make four-five stocks related to whatever is happening and the rest of the portfolio remains longer term without thinking of a theme and you are adjusted to the new environment.

So, we adjusted to the new environment for the last two years by buying a few more PSU/value stocks because we thought that there had been a massive underperformance of value versus growth for the previous many years and when it started there was logic of how the Prime Minister was forcing or putting pressure on PSU management to go for a bigger market. Just because you are called a railway PSU, why are you only doing railway business? Go and compete with the L&Ts of the world or whatever. So, all these things you go along as it comes. Do not make it bigger than that. There is no big theme that I go for.

But it is no secret your optimism on HDFC Bank, ICICI Bank, SBI, etc. But what are you doing incrementally? Are you adding weights in that basket and also are you looking at expanding your financial exposure? Jio Financial Services has been doing quite well. Any other name that you are watching out for?
I do not think. We had bought Motilal Oswal. It is there in the mutual fund also so must have been bought around that time because we all have it, all our funds have it.

But I do not think we bought anything else new. But the next mutual fund that is being considered in India that we might do will actually be related to financial sector because we think that this sector has in a big picture sense done very well all our life, which means more or less all the life of the markets in 90s and it has not done well at least in aggregate for the last two-three years while the numbers have been good and it is where there is a lot of breadth of choices from mutual funds to brokerage to wealth management companies to banks, to private banks, to state-owned banks, to whatever credit card companies. It covers a large part of the market and it has somewhat, not a lot, but somewhat out of flavour and so we think that is a worthy thing to do as a fund. So, that means we are very bullish on it as a complete theme, but I would suggest from your side do not ask me on HDFC Bank. People are sick of my talking about it.

No, we are absolutely not. We can go on hearing your view.
It is our number one holding. We like it, but just move on and ask more interesting things.

So, let us move on to more interesting things and one thing which has been garnering a lot of headlines of late is telecom. So, you have exposure to Bharti Airtel, but what is the view on Vodafone? Would you be perhaps a subscriber to the FPO?
No, because the thing is if you see the assumptions on how and why this should do well, there is an inbuilt thing again and again that you need a 20-30% price hike to be profitable or to do well.

And so if you have a 30% price hike, we will also do alright with our Bharti, but you know India and the stock market and reality and so we have to deal with all those things. Of course, this may do better than that for a few months if that happens. So, we would not buy it because it is okay.

You bought into urban consumption, but now is there a fear of a base effect which could kick in? I mean the theme was avoid rural, buy urban consumption or urban luxury.
If we look at the stocks that we own, we think they are okay. For example, we still continue to own Varun which I think just because the summer will have, I do not know, maybe 30-40-50% growth in terms of at least the volumes for now or if we look at Zomato, it is not so much because of just the food consumption, it is basically taking market share from the other companies and all. Other companies means not from Swiggy. I mean, you are just getting from the same business, people are just sitting at home, but its main story has become Blinkit.

The other big consumer companies we have are not very big separately, but this Titan types and all that are okay.
So, we do not have those typical old consumer companies, the staple type companies other than a little bit of ITC. So, we are not over. Actually, we will be happier if we do not have auto where you can clearly see a slowdown.

In fact, today there is an article in your related newspaper only about the big discounts that are being offered. So, we are not that way over overweight in the regular India related consumption going up.

In all of these, there is some market share angle and some premium angle, for example, Landmark Motors because the Mercedes is selling, but the other cars are not, that kind of stuff.

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