The biggest risk in the equity markets is the one you can’t see: Samir Arora

Helios Capital founder Samir Arora.
Helios Capital founder Samir Arora.

Summary

  • In an interview, market veteran Samir Arora, the founder of Helios Capital, speaks about the sectors he is most bullish on, inflation expectations and more

Uncertainty around the upcoming assembly elections, high interest rates globally and a war in West Asia might have an immediate bearing on market prospects, but these issues won’t matter in the medium or long term, says market veteran Samir Arora, founder of Helios Capital, whose maiden equity fund is open for subscription. For now, we have to pray that the war will not involve other countries like Iran, he adds. Edited excerpts from an interview:

What do you make of the markets at this juncture amid a war, elections , rising US bond yields, etc.?

In any reasonable medium to long term, the Indian market has given strong results. If you look at the past 5 years, 10 years, 15 years, 20 years and 25 years the market has broadly given mid double digit returns. In fact, in 25 years, the market has even beaten the results of Warren Buffett in US$ terms.

In this period, we have seen all kinds of local and global issues—26/11 (terrorist attacks in Mumbai), 9/11 (terror attacks in the US), Global Financial Crisis, Covid, attack on (the Indian) Parliament, the Russia-Ukraine War, (the Indo-Pak) Kargil war etc. In the immediate term all these issues of war and elections may matter, but never really in even the medium term.

For the moment, we have to assume and pray that war will be contained and will not involve other countries like Iran. State elections are not so crucial from a market point of view for investors realize that issues in state and central elections are different. Markets would be worried if they thought that there could be a change at the Centre, but I see the probability of that as very low.

US interest rates are high but even there the belief is that in the next 6 to 9 months, the interest rate cutting cycle may start.

Unlike in the past few years, this time around direct retail (not those who have invested through systematic investment plans of mutual funds) who entered in August-September at peak rally have been singed by the six-day fall. Can this result in a more pronounced correction and rub off on SIPs?

Not at all. SIP investors have realized the power of monthly investing which coincides with their earning cycle. I think the mutual fund association and companies have done a good job of explaining the benefits of systematic investing to people.

Which sectors are you most bullish on? In the current context, how would you de-risk your portfolio?

I have always owned a little bit of gold. With very high US interest rates, gold may not have done well recently but generally it acts like a real hedge and diversifier.

Our whole team believes in equities and “skin in the game". I checked last night and our employees (including me) have already invested more than 32 crore in the new fund offer (Helios’s maiden equity fund, a flexi cap fund, is now open for subscription).

We have broadly liked 3 main themes all our life—financials, consumer and information technology. However, since June 2022 we have zero to very low weight in IT. Still, over the medium term, these will remain the three attractive sectors.

Tactically, one may invest in the defence, automobiles, etc., but the above three sectors are generally the backbone of any portfolio.

Do you think that the shunning of China is responsible for stoking inflation expectations and leading to higher rates for longer?

Reducing China dependence will lead to slightly higher inflation but over time other countries will step up, including Vietnam and India. I don’t think that the current high inflation in the West is due to their attempt to reduce dependence on China. That will have a more subtle, long-term impact.

Is monetary policy alone effective in tackling inflation in this context?

It is already helping. Inflation in India is in line with our past experience unlike in USA where it was way off the charts.

What’s the biggest risk for Indian markets?

The biggest risk is always the one you cannot see. Any obvious risk gets quickly discounted these days.

Coming back to your NFO, does your eight-factor rule restrict you to large caps mostly?

Our maiden equity fund, Helios Flexi Cap Fund, is now open for subscription. We have a time-tested model which has served us very well at Helios Capital. Our first goal in investing is to remove the “bad" factors affecting any company. We believe that even one of the following 8 factors affect the probability of a company doing well. (These are) bad theme, bad industry dynamics, potential for disruption, bad management history/ strategy, bad corporate governance, bad financials, bad growth projections and bad valuations.

Removing companies with even one “bad" factor improves our chances of arriving at the good and reduces the cost of error.

The NFO coincides with the heightened volatility and more intense competition from other MFs. Could this affect the subscription?

A correction in the market could also lead to increased subscriptions as investors may want to buy the dip. We are not worried about other mutual funds for it is entirely reasonable that they worry about us. After all, we have a demonstrated track record of doing well in this market with our rather unique “elimination investing".

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