HDFC Bank remains the best idea of this country, says Helios Capital on Wednesday.

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In an exclusive interview to CNBC-TV18, Samir Arora, founder and fund manager, said Helios Capital has added Corporate Bank and a state-owned bank in the portfolio.

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State elections remain an uncertainty for market, says Helios Capital

Arora said recent market move reflected broadening of the market rally and widened holding in financials.

Edited excerpts:

Q: The point I wanted to discuss with you was as a fund manager, we saw a period where a lot of funds underperformed, we saw portfolios take a hit, net asset values were down, midcap market went through a brutal correction all through May to July period. Have you put that behind us? Have you started to see the rally broadening again?

A: It's broadening and that is helping, but depends on what index you are comparing to. If you compare to Nifty, everybody is still underperforming, even us in rupee or dollar would have you converted, because it's too concentrated. But the good thing about being a hedge fund is that people look at absolute performance. We can say that at some times, please look at absolute performance, although overtime, we have to beat and have handsomely beaten the index. So it helps to have a broader rally, but mostly it helps, if you have the stocks that are going up even if it's very narrow.

Q: But having said that, interest is coming back in the midcap market. I was just spotting a couple of these stocks, even the likes of Kajaria are moving higher. The rupee is an issue and you have been tweeting and writing about that a lot. Given where the rupee is, are you looking at doing a rupee play in the India market, that means load up more on the IT and the pharma or is that not influencing your decisions at the moment at all?

A: Right now, it's not influencing too much, because I still feel that growth is higher in many of my financials and in some of my consumer. So, we are happy with that part. It's just that we have drag of having lost 9.5 percent on just conversion, that is the irritating part. Otherwise, we are okay with the rupee terms . We could have managed.

Q: You still like financials but the question is what side of financials?

A: Maybe, we are now broadening ourselves.

Q: That means corporate banks?

A: We even have a PSU bank.

Q: The largest one of them all?

A: Yes, it's the only one you can have. So for the first time in three-four years, we have not got any short, which we didn’t have for the last three months on PSU banks, but in between, we used to have this bank once in a while. Now, we again have it. Currently, only in futures, but the idea is let us see if we can get something out of it. We haven’t made much yet, maybe 3-4 percent. Generally speaking, everybody had to change little bit their portfolio, because different things are happening.

Q: What about risk for this market? This month, we have outperformed emerging markets. Even if you take into account the currency factor, the MSCI Emerging Market, MSCI Asia ex-Japan, we have outperformed that, and in rupee terms, we are perhaps the best performing market. Is that putting us at a bit of a risk especially that we have so many elections coming up now?

A: That is true. My biggest risk if you say, slightly big picture is that even if BJP or Narendra Modi may win the main elections, you cannot say the same about the state elections. Will the market or the investors be intelligent enough or discriminating enough to say no, and says this is centre, there is state, there is viable opposition. In centre, there is no opposition and people will vote separately or think differently. So that is one event, which we have to cross, but for us, always we have 25-30 percent short even now. But, as I said, we have changed a little bit of the mix on the long side and little bit we have changed on the short side. So this will never go away but generally so far, the momentum is good and it's broadening for sure.

Q: So two part question then. What kind of shorts do you have in the portfolio right now and since you said you are even adding PSU banks and of course the largest of them all are you adding higher beta in your longs?

A: We have added Corporate Bank. While we are okay with high beta and actually enough on the long side. We are also short, that brings down our beta to be in line with our net. So, normally our beta is around 0.6. So, we have added the Corporate Bank and we have added this state-owned bank. Both this bank, we have added about two months ago, so it's okay for the moment. But I still think that my number one is the number one, best idea of this country, which is HDFC Bank.

As Puri has been challenged, so he has another goal in life. I hope I am motivating him as he has to show that, how dare you think that my bank will be affected if somebody leaves. He is back on the front foot. He has the money. He grew 18.5 percent and what does it take to say it's growing to grow 21 percent. It’s one shouting at its three subordinates will become 21 percent or something higher than what people expect and it has corrected also, you can say. But it has definitely underperformed and now it's up only 9-10 percent this year. So, it's pretty good that is why I feel not to change everything too much.

Q: Adding more to the portfolio what has happened is that not only in the largecap space even in the midcap space whatever has worked well continues to work fantastically well like Page Industries, Ashok Leyland, bought back after the recent dip, Shriram Transport Finance etc. So are you comfortable buying these stocks no matter what the P/E or are you actually now trying to go contra, look for value, no more new ideas?

A: As I told you, two names in which we have added seven percent.

Q: On the midcap side I am asking you?

A: Midcap, I haven’t bought anything. I have my old midcaps, I have to recover and I am okay with that. I have no interest in midcaps for now, unless they are unique. What happens is after every correction, you realise that even though these midcaps you had, maybe it went up. As the whole market went up, but what is its uniqueness, nothing, sometimes you find.

That is just one more of the same, construction or one more of the same something. So, every time at the turning point you say, why the hell did I ever buy this? Even though it might be up, at least overall maybe not in the last 3-4 months, so now you have again forgotten about that. We want companies, which we think have something special to add to the customer or to their space. Not just one more of the same. So again, the bull run expands and we will also forget all this. But that is a part of life.

Q: Given where you sit, you get a sort of a lot of information and inputs of global investors. The rally has been so great not just in India around the world even in the US markets, is it really goldilocks?

A: It's not that great, let us not get carried away. In dollar terms, it's the only thing somebody will know.

Q: If we leave the currency disadvantage?

A: How can a foreign investor leave out and then somebody will say, why didn’t you hedge the dollar? The point is, if you hedged it routinely, it will cost you five percent anyway per year. So, it's not that hedging means that something happens of free. Many people think that why didn’t you hedge oil? Why didn’t you hedge this? Nothing happens for free. If it goes beyond that cost of hedging, then only you make some money. So, supposed somebody has hedged at the beginning of the year or end of the last year, he would still have lost that 5-6 percent cost. So we would have saved three percent. But the whole idea is that it has to be valued in dollar, so it's not a great rally. But we know that it is expanding and we believe there is a limit to how much currencies depreciate unless there is crisis. So, in general we say okay to depreciate another two percent, but will stop now.

First Published:Aug 29, 2018 7:00 PM IST