 "Samir Arora")
The markets have seen a steady rise in the past few months, owing to expectations of a stable, business-friendly and a pro-reforms government at the Centre. Singapore-based Samir Arora, founder and fund manager, Helios Capital, (Twitter: @iamsamirarora) in an interview with Puneet Wadhwa, says he expects the equity markets to do well through the next three to five years. This year, corporate earnings growth is expected to be 14-15 per cent, he says. Edited excerpts:
How is India positioned as an investment destination compared to three-six months ago, when most market participants were rooting for a stable, pro-reforms government?India is well positioned vis–à–vis emerging and developed markets. That does not mean it has to outperform every market in the world over every period. What it means is there are many positive developments in Indian politics and its economy; investors around the world appreciate that and will continue to be positive on the market.
What do you think of the market’s reaction to the poll outcome? Do you think it is over-optimistic and the markets have run ahead of fundamentals? Where do you see the Sensex and the Nifty by December-end and March-end, 2015?
I believe the market reaction to the polls has been moderate. The market is reacting to the fact that the Bharatiya Janata Party/Narendra Modi won. But it hasn’t reacted sufficiently to account for the fact that the win was so overwhelming. One should also take into account that the market was not fully discounting the exit polls; and, the exit polls weren’t reflecting the reality of the ‘Modi wave’.
How much headroom is left after the recent rally in frontline benchmarks? What about mid- and small-caps? Do you suggest taking some money off the table till we see the fundamentals catching up?
The question has many assumptions: a) Retail investors have money on the table (collectively, I do not believe they have any real money on the table); b) the market has gone ahead of fundamentals (how does one exactly know that? The valuations are not out of line); c) investors will know when the fundamentals catch up; and d) they will be able to buy before the market reacts to the improvement in fundamentals.
Investing in equity is an asset allocation exercise and retail investors who keep trying to time the market will miss the significant run everyone expects.
How supportive are macro economic factors such as inflation, the rupee and the current account deficit to the market build-up? Are the markets ignoring the impact the monsoon/El Niño might have on food prices and its bearing on the inflation trajectory?
People who worry can keep worrying. There is no solution to that. In any case, it is not clear whether a retail investor benefits a lot if he puts five per cent of his money in equities and the markets rise immediately. Instead, he will benefit more if he invests five per cent and then adds to the allocation before a real rally, to benefit from a larger allocation to equities.
If the El Niño effect is bad, it will be good to add more to equities as, hopefully, it will be a one-off event. However, for people who want to wait, there are many events they could wait for, including a) formation of the cabinet; b) the Union Budget; and c) implementation of the Budget. I believe this wait will never end.
In equity markets, there will never be a time when one is 100 per cent confident.
Most market participants have shifted focus to cyclicals and high-beta stocks such as those of banks, realty and infrastructure, capital goods and automobiles. From a 6-12 month perspective, is it a good time to invest in these stocks?
What you buy depends on what you have bought. If one is already overweight on defensives (information technology/pharmaceuticals/consumer), it is sensible for investors to diversify into economically sensitive stocks.
However, new investors or new money cannot only buy cyclical stocks; they need to be buying good stocks across sectors. The best strategy for investors is to buy well-managed mutual funds, of which there are many.
How do you see corporate earnings through the next few quarters? Which sectors could underperform, as well as outperform?
This year, corporate earnings growth is expected to be 14-15 per cent. We buy stocks on a bottom-up basis; in choosing stocks, earnings growth is only one factor among many.
Through the past few years, retail investors have typically been fence-sitters in equity markets. What is your advice to those who want to jump in now? Have they missed the bus?
We expect we are at the beginning of a new cycle for markets and the economy and equity markets should do well through the next three-five years. This does not mean the markets will not be volatile; therefore, investors should invest gradually and not wait to time their investments.
