 "samir arora")
It has been an eventful 2020 for the markets thus far. Provided there are no further shocks — like bankruptcy of Vodafone Idea — the equity markets should again deliver reasonable performance, SAMIR ARORA, founder and fund manager, Helios Capital, tells Puneet Wadhwa. Edited excerpts:
How do you see the markets play out over the next six months?
The markets, on an overall basis, look reasonable right now. The broader markets have not done well for the past two years, but it seems that the markets are expanding in terms of stocks that are now doing well as compared to very few movers in recent years.
Decisions taken by the government to improve the business landscape and make it robust and sustainable had the side-effect of hurting the unorganised and the small. Demonetisation may have hit small companies more, as part of their sales/costs/working capital funding may have been in cash. Similarly, goods and services tax (GST) would have made it difficult for smaller companies to evade taxes assuming that bigger companies were already tax compliant. The Real Estate (Regulation and Development) Act, or RERA, hurt small developers as people lost confidence in their ability to deliver projects in time. Also, there was a massive rally in mid- and small-cap stocks in 2017, driven not by better prospects but by local money coming into mutual funds.
Two years of correction and passage of time may have removed many of these excesses. Provided there are no further shocks (like the bankruptcy of Vodafone Idea), the equity markets should again deliver reasonable performance.
Is the coronavirus fear abating, or will there be one more round of selling?
As of now, it seems that the markets are seeing through the coronavirus issue and playing for the phase when the virus is contained and does not create any uncertainty or risk. Normally, one would expect a fall in the markets around this time and perhaps a recovery when the problem is contained. However, in today’s environment, the markets move directly to a positive scenario without caring for the interim negative situation. This analysis of the situation by the markets essentially means that they are betting on an early containment of coronavirus.
Do you expect India to gain in any measure because of the outbreak?
India may be a small beneficiary of this if investors and corporates decide that they should not put all (or most) of their eggs in the China market and have more investments or part of their supply chain in India as a hedge. The government had taken a start, by cutting corporation taxes for new companies, for attracting global companies in view of the US-China trade tensions. The coronavirus outbreak may help accelerate those decisions.
How are foreign investors looking at India as an investment destination?
Last year was good for India in terms of foreign equity inflows, even though the market significantly underperformed peers. At one level, India is part of global, emerging and Asian market flows and will get its due share. But we need to attract disproportionate flows and have to work harder for that. Foreigners’ interest in India remains intact for now, and as the economy improves, we hope that foreign institutional investor (FII) flows will become stronger.
Has India squandered the advantage that it had by not giving enough boost to the economy in the Budget after the corporation tax cuts in 2019?
The tax cut was a significant boost to the confidence of the corporate sector and signalled that the government cared for corporate health and confidence. I expected that the government would follow that up with tax concessions to consumers but slow gross domestic product (GDP) growth and little fiscal room led to limited scope for the government to do much more. All in all, if Indian corporates have got away with a 10 per cent permanent tax cut in return for a cyclical slowdown, it is not a bad deal.
Can 2020 be the year of mid-and small-caps?
Mid- and small-caps have done poorly for the past two years. Therefore, there is some logic to the argument that their time will come soon. On the other hand, rally in these stocks in 2017 may have been totally unjustified, as it emanated from the huge inflows into domestic mutual funds, post demonetisation, and not because of any fundamental reason. There is no need to follow ‘all or none’ strategies in the stock market. Diversify your investments into all-cap funds and hope for the best.
How do you see the markets play out over the next six months?
The markets, on an overall basis, look reasonable right now. The broader markets have not done well for the past two years, but it seems that the markets are expanding in terms of stocks that are now doing well as compared to very few movers in recent years.
Decisions taken by the government to improve the business landscape and make it robust and sustainable had the side-effect of hurting the unorganised and the small. Demonetisation may have hit small companies more, as part of their sales/costs/working capital funding may have been in cash. Similarly, goods and services tax (GST) would have made it difficult for smaller companies to evade taxes assuming that bigger companies were already tax compliant. The Real Estate (Regulation and Development) Act, or RERA, hurt small developers as people lost confidence in their ability to deliver projects in time. Also, there was a massive rally in mid- and small-cap stocks in 2017, driven not by better prospects but by local money coming into mutual funds.
Two years of correction and passage of time may have removed many of these excesses. Provided there are no further shocks (like the bankruptcy of Vodafone Idea), the equity markets should again deliver reasonable performance.
Is the coronavirus fear abating, or will there be one more round of selling?
As of now, it seems that the markets are seeing through the coronavirus issue and playing for the phase when the virus is contained and does not create any uncertainty or risk. Normally, one would expect a fall in the markets around this time and perhaps a recovery when the problem is contained. However, in today’s environment, the markets move directly to a positive scenario without caring for the interim negative situation. This analysis of the situation by the markets essentially means that they are betting on an early containment of coronavirus.
Do you expect India to gain in any measure because of the outbreak?
India may be a small beneficiary of this if investors and corporates decide that they should not put all (or most) of their eggs in the China market and have more investments or part of their supply chain in India as a hedge. The government had taken a start, by cutting corporation taxes for new companies, for attracting global companies in view of the US-China trade tensions. The coronavirus outbreak may help accelerate those decisions.
How are foreign investors looking at India as an investment destination?
Last year was good for India in terms of foreign equity inflows, even though the market significantly underperformed peers. At one level, India is part of global, emerging and Asian market flows and will get its due share. But we need to attract disproportionate flows and have to work harder for that. Foreigners’ interest in India remains intact for now, and as the economy improves, we hope that foreign institutional investor (FII) flows will become stronger.
Has India squandered the advantage that it had by not giving enough boost to the economy in the Budget after the corporation tax cuts in 2019?
The tax cut was a significant boost to the confidence of the corporate sector and signalled that the government cared for corporate health and confidence. I expected that the government would follow that up with tax concessions to consumers but slow gross domestic product (GDP) growth and little fiscal room led to limited scope for the government to do much more. All in all, if Indian corporates have got away with a 10 per cent permanent tax cut in return for a cyclical slowdown, it is not a bad deal.
Can 2020 be the year of mid-and small-caps?
Mid- and small-caps have done poorly for the past two years. Therefore, there is some logic to the argument that their time will come soon. On the other hand, rally in these stocks in 2017 may have been totally unjustified, as it emanated from the huge inflows into domestic mutual funds, post demonetisation, and not because of any fundamental reason. There is no need to follow ‘all or none’ strategies in the stock market. Diversify your investments into all-cap funds and hope for the best.
What’s your view on how things are unfolding for the telecom sector?
