Samir Arora, founder and fund manager, Helios Capital, says the market is unlikely to repeat the performance of 30 percent returns that it did during the first year of the first term of the NDA, even if the exit polls are proved right and it will be another term for the NDA government.

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“In general, we already know the policies of the BJP. Therefore, you cannot get that kind of a rally which was based on optimism, hope and new policies being implemented,” Arora said in an exclusive interview with CNBC –TV18.

Excerpts from the interview.

It looks like the market is getting the best case outcome out of the polls if we go by the exit polls. How much of this is in the price? You have this theory that nothing is priced in till the actual event, but your thoughts?

That is true, but I feel that the event in that sense is out of the way because now on May 23, you cannot do better than this in terms of the news on the Bharatiya Janata Party or the National Democratic Alliance seats. So I think we move on to regular market-related issues and those are not very positive right now.

It is not clear whether the new government or an old government can change some of these things. So I am feeling that it is a normal market now and the event is out of the way. But it is not a runaway market to celebrate the same news for many more days.

You have said that there are a lot of headwinds for the economy and the new government will not be able to solve it easily, and so we should not pencil in the kind of 30 percent returns we got in the first year of the first term of the NDA.

Absolutely not. At that time, it was coming off a very poor performance of the previous government. Now it is more like more of the same in most cases. I hope that they will become aggressive on some new things like tax reductions, but in general, we already know the policies of the BJP. Therefore, you cannot get that kind of a rally which was based on optimism, hope and new policies being implemented.

Apart from the exit polls, I want to talk a little more about what is happening with the economy itself. Before this election wave took over, there was that big slowdown in consumption, whether it is autos or fast moving consumer goods. Now you are starting to see these stocks recover, how do you approach this space?

Just because there is a problem does not mean that there has to be a solution. My best example is from January of 2012. The markets were bad in 2011. There were those power companies where the problem was about to be solved because an official at the Prime Minister’s Office at that time and Ratan Tata were meeting. And all those stocks went up. We were sure most of the stocks at that time were up 30-50 percent in January 2012 on the basis that the government had taken up the issue. For the first and last time in my life, I attended a conference call organised by Power Producers of India or something, and till today the problem is not solved.

So, let us say the issue today is about non-banking financial companies (NBFCs) having problems because the real estate developers are in problem. You cannot solve it. Only time can solve it. You have already given tax incentive, you have reduced goods and services tax, you cannot compress this anymore. Therefore, I feel that some of these issues take the time.

Coming to the consumer goods slowdown, that is one more negative in that sense but we still believe in the big picture that the only real themes of India are financials, consumption and a little bit of IT and maybe once in a while pharmaceuticals. We can today say that Titan is having good results or Bata is having good results or even Westlife is having decent results. So you have to pick and choose, but broadly there is a slowdown.

However, this slowdown cannot be a secular slowdown, it will still remain an attractive sector. Somebody will think maybe they should buy it a little cheaper but we cannot walk away from the consumer theme. So that is one of the logical themes in India because of demographics, because of urbanisation, people moving up from lower middle class to middle class, under penetration, catching up with the world.

I wanted your thoughts on a couple of sectors within financials. Public sector banks have started to move up, once again led by State Bank of India, and your thoughts on NBFCs.

On PSUs, now we have two. Last time when we spoke, we had one. We bought SBI last to last week, after the results. So another thing that we have is that let us buy stocks where the results are already out and they are good. It doesn’t look like the last time, that they are good instead of trying to bet on turnarounds and events that will solve them. So in that sense, we have not added any NBFC. One of them is that favourite of everybody, Bajaj Finance – we still own two more but we are not betting on that anymore because that is a bet on turnaround, on government help, on Reserve Bank of India doing something. We don’t believe in all that. It will happen, so it is okay but best is to have stocks where you don’t need some specific help or anything.

You were speaking about even State Bank of India. There was this big monster rally we saw in PSU banks. At the moment what is your long short position?

This number is very interesting. We started at maybe 65 and went down to maybe 42, but this time we had to use index and now we are around 65-66. So this month was good for us because we shorted at a good time and sort of covered it at a good time. So, right now it is 65. So that point-to-point would look nearly the same as one month ago. But this month was violent in our shorting and covering. Right now we are about 95 long and some 29-30 short.

You said a bit of IT. What would be part of that list -- largecaps and midcaps?

Basically, in IT there is less value-add in terms of choosing which stock. However, broadly we feel that there should be some weightage, because we did not know the results and we thought that if the results are negative, rupee will weaken, people will look for non-India assets a little bit and the investments. However, in general, when we look at the big picture, we feel that the Indian companies have done well.

We missed a part of that in 2018, but we now feel that looking at our alternatives in India which have to do with infrastructure and capital goods and all those things which we think are not worth even analysing anymore other than say Larsen and Toubro type. We are okay with having some 15 percent in IT. However, the stocks are the regular stocks, one largecap and three midcaps.

You spoke about Tata Motors, but more generally autos, even Maruti Suzuki, has not done very well. What is the take?

If you look at the world, there was an article in Wall Street Journal that only some 55 or 58 percent of teenagers now have a driving licence compared to 85 percent in the 80s and 90s. That means there is less interest in driving and even we can see that in our younger generation in India because of share taxis, Ola and Uber. There is less interest and fascination in owning a car. However, of course in India, we can say we will still have a lot of catching up to do.

You have any positions in Interglobe Aviation, do you like the stock?

No, we do not have long or short in any of them. My thinking is that, not on this stock but in general, if you ask me what is the thinking or strategy, I think it is more of the same. Once in a while you may bet and even if out of 30 stocks you own one is not going to change your life, that there will be change of policy that might help it or there might be some corporate action.

However, if you look at say 10 expected corporate actions, nine of them are not going to happen the way India works. So, in theory, although we also are not able to do it like that, but if you shorted all 10 stocks where you said tomorrow there is going to be some corporate action and you short it, in nine or eight out of 10 you will make money, because it is not so much that the media is wrong, but you look at it, years and months after approvals, deals get cancelled either by the government or by some regulator, or by market.

There are 100 of people who come in between a deal. So, there is no need to bet on something that will change from tomorrow because today it is bad, but tomorrow it will become good. This is not the environment for that. Any way the US market having gone out for long will one day correct, although it looks like one the best markets right now. And so before we really start betting on changes, it is better by looking at the history of this government that whatever they were doing, there is no reason to believe that there will be a mega shift in their thinking.

First Published:May 21, 2019 9:01 PM IST