A global riskover rise in oil prices coupled with a good monsoon forecast and the government’s resolve to push reforms including the GST appears to revive sentiment. The Sensex and Nifty is roaring as investors rush to cash in on India’s growth story.
Speaking to Bloomberg TV India , Helios Capital Fund Manager Samir Arora says while it is difficult to predict if India will outperform other markets, investors can make 12-15-per cent returns in dollar terms by investing in Indian equities.
I think it is sustainable. It doesn’t have to keep going up. But generally a little bit of optimism is warranted particularly because the world has accepted that a small hike in interest rate by the Fed will not be so bad, and then in India prospects of good rains and the GST Bill expected to be passed in the next session of Parliament.
Generally, the expectations are tempered as economic pick-up has been slow. But now the expectation is that a lot of things that the government has done will actually start showing results in the next 12-18 months. If that does happen what kind of upside do you see in the Indian market? Do you believe India will outperform most of other Asian markets?
That will happen because everything takes time. Even if the government had not done many things, which they have done in many areas, the market will not continue to fall because certain things are cyclical. The cycle is improving. And in addition to the cycle, what the government has done or is trying to do over the 2-3 years, many things are accepted and many things have changed. In general, growth has improved which fills capacities. The biggest turn right now is the cyclical turn. The cyclical turn is that for 30-40 per cent of the market or corporates, there was a very bad time in the last two years because these are global companies, cyclical companies, commodity companies and lenders to these companies. So in the last two years this government has benefited from the biggest event, which was the decline in the commodity prices, and also hurt by the biggest event, which was also the decline in the commodity prices. What the government saved on its fiscal account from duties on oil, they have lost in revenues from steel companies and other companies. And the same government has to support state-owned banks or lenders to these commodity companies. But supporting these banks is a one-off event, which means 1-2 years. But hopefully, oil savings, if it remains at this level, is a bit more permanent or last for at least two years. Whether India will outperform other markets or not? It is difficult to say. But can we make 12-15-per cent returns in dollar terms? It should not be so difficult. That is good enough for the world to send billions of dollars (to India).
In terms of just sectoral themes, what part of the market are you looking at to outperform the market?
We don’t do that much every day to change sectors. But we continue to like the financial sector, basically private sector banks and NBFCs. Suppose you want to know rural demand or urban demand. We try to use NBFCs more than trying to find the end-use companies because we feel these guys are more able to deliver growth.
We have seen top-line Indian pharma companies run into a lot of regulatory issues. Do you find value at that particular sector or do you still believe there’s a downside there?
No we don’t. Also particularly with the US elections and both the candidates saying that they will negotiate medical prices, I didn’t know until recently that there is some legal issue or reason why the biggest buyer—the government—there cannot negotiate with the companies.