Samir Arora, founder of Singapore-based fund Helios Capital, is a widely-followed fund manager and is known for his frank views on the market. While he does not prefer to have an index target, he says that if the Indian markets stay largely around current levels by the year-end, or perhaps even 5 7 per cent higher, it would be highly satisfactory.
BT: The Indian benchmarks are down around 10 per cent from their highs touched in October last year (they were down 18 per cent till recently). Do you think Indian indices can enter a bear market with a fall of 20 per cent or more?
SA: Even though the index is down 13-odd per cent, many individual stocks have already fallen more than 20 per cent from their highs so this question is not so crucial anymore. A further 5-7 per cent fall is possible at any time but investors need to now focus on whether this fall can sustain for long and whether the markets will be higher 1 and 2 years later and whether one will be compensated for this short-term further weakness (if it does emerge) and our belief is YES.
BT: If you had to pinpoint 3-4 key concerns for the markets, what would those be?
SA: The biggest concerns for the market are currently emerging from the very high inflation in US economy which is forcing US to significantly hike rates. This creates its own problems as US currency appreciates against other currencies like Euro, Yen, Sterling and indeed the Indian rupee. Weakness in currency and other associated risks are making the foreign investors sell Indian (and Asian Emerging Market stocks) in record amounts.
BT: Are we still in a long-term bull market with the ongoing downswings only technical corrections?
SA: It does not matter what we classify it. We are better off calling it a bear market so we can realistically project a new bull market starting in the near future. Bear market phases don't last more than 9-12 months so the best way to look at it is that US is going through a bear market and we are skirting around it and by new year a new cycle can start.
BT: FPIs sold nearly $34 billion in nine months (till June). Would the FPI selling continue at the same pace or you expect some sort of reversal or reduced pace of selling? Also, the reasons.
SA: FPI selling would definitely abate in my view in the next 3-6 months. The default position of FPIs is that they are generally net buyers of stocks worldwide including in India. Since 1990s I believe that they have sold stocks only in 4 or 5 calendar years. This year the selling being done cannot be attributed to anything negative that they may have seen in India, per se.
Selling is largely due to higher rates in USA and poor performance of markets worldwide (not so much in Indian market) which leads to pressure on flows, redemptions etc. I think plus/minus 6 months FPIs will be back to buying Indian stocks again as they look beyond 2022 by year end.
BT: Domestic institutional investors and retail investors have been providing much support to the markets at a time when FPIs have been selling significantly. You expect that trend to continue or does the ongoing downswing have the potential to affect such inflows as well?
SA: The best scenario for the markets is that domestic investors keep the faith and then one day soon, FPI buying returns. This scenario is highly likely for next year.
BT: If you had to pick 3-4 sectors with a medium-term investment horizon, which would those be? Also, sectors to stay away from.
SA: We generally invest only in three themes - financials, under penetrated middle-class consumer and export sectors like IT & pharma & specialty chemicals. We generally do not invest in commodity sectors and “Billion Consumer” stories.
BT: Is this a good time to look for potential multi-baggers in small-caps, or is it better to stay safe and go for blue chips?
SA: We have always preferred a mix of two themes. One we call “High confidence in reasonable returns” where the confidence is high because they are well known companies (or blue chips) and we are choosing around 10 companies from the large cap, well known universe. We hope that the returns here will be reasonable (outperform the market by 3 to 5 per cent per year). Our second group is what we label “Reasonable confidence in high returns’ where we are discovering new stocks and ideas but where we size the position a little smaller to take care of the risks and where we expect the portfolio's returns to be much higher.
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