Interview: Samir Arora of Helios Capital on budget, auto sector slowdown, PSU divestment and more

"We will not buy (auto stocks) because some things are both cyclical plus structural," Arora said.

Edited excerpts from the interview:

Not because of L&T’s fall, it is that the Indian government on its own says that there is no money. So, for example, they have just said that for the January to March quarter reduce your spending by so much and March month you cannot do so much. We know that goods and service tax payments are not being made. We have to show and prove that the Indian non-performing assets are being cleaned up and that every Indian promoter is a 'chor'-- effectively they sold viable, existing, profitable businesses to foreigners like Canadian Pension Fund and whatever; Blackstone has $10 billion of real estate. Now that means that every year those guys will be paid 8-10 percent per annum and in that business, we basically India, is a tenant. The Indians are tenants in their airport, in their roads, in their port, in power and every asset owned by foreigners or will be owned by foreigners because we are trying to say that every Indian is a thief.

I think they are overdoing it, and therefore all these assets are being bought by foreigners who for life you will have to pay 10 percent per annum royalty to them. That is why I say that the best investors, foreigners are foreign institutional investors (FII). Because when FIIs come into India they fund an Indian promoter, they only take dividend yields which are 1-2 percent or mostly zero, they sell when the market is bad, they even blow away their returns.

It will rise for a few hours on the basis of personal income tax. But I am saying that the market is not bad, please understand what I am saying. I think we are overly, in all your commentary, everybody’s commentaries, saying January is a pre-budget month. See practically the budget doesn’t have room to surprise you positively. It has room to either disappoint you or to say more of the same and then it becomes a normal market and the normal market is not that bad. Because base effect will come in, interest rates will come in, hopefully, the global emerging markets where we have underperformed massively this year, at least we will get our flows and life will move on maybe 3-6 months later. Therefore the equity market can discount it three months ahead. I am saying these events are actually negative not a positive.

Those you will not believe on day 1.

So the guys who are doing well are basically doing well because they are mostly winning market share from somebody. They are either winning market share from state-owned companies, or from NBFCs or there is some penetration increase.

Correct, and previously I used to own these air conditioning companies, but then I gave up even though it was a penetration story because there is too much competition and then the winter and summer and all this irritated me too much. But broadly those were penetration stories and penetration stories broadly mostly work. But to say that the whole of India will grow at a much higher rate, that bet is basically not been taken right now.

We do not own it because in the past we never used to own commodity and in-between we never owned telecom and it has been a big negative influence on our performance not having it last year. So right now I will wait and see if there is an opportunity, but it has gone up 35-40 percent last year against market basically flat and therefore then you have to totally bet on ETF flows and flows which are going to go in 4-5 stocks and it has been one part of the story and so we have to see. Right now we do not have it and it has hurt us more than helped us.

Around 3-4 months ago, I came on your channel and said it cannot happen like this because these are $8-10 billion type of investments. You can’t do it like a stock market sale that you are appointing a banker in January and it will get down by March. But broadly we will not buy because BPCL is rare, we should have had it that time just before these things were announced.

We will not buy because some things are both cyclical and structural. I think auto is not a 2020 theme and it’s not an Indian slowdown; a similar slowdown is there across the world. Now we can say India has under penetration which could be one. But I don’t think India is underpenetrated in the right segment. If we divide anything by 1.3 billion people then everything in India will look underpenetrated. You have to look at broadly in the segment that can buy. You look at Delhi or Mumbai, there is no road, there is no parking, there is nothing and clearly if Uber and all have done well something we have in place, right. So to say that this slowdown is cyclical as if all the rides on Uber were actually over and above what would have normally happened, it is not like that.

Indian market relative to the global market could underperform. Our job is that we should beat the Indian market and want the Indian market to beat what other things you can do in India, which is put in bank deposit, put in real estate etc. So if we can do that we can be half happy, but we are really happy in a year like 2017, 2014 when we are up 50 percent and the world is up 20 percent. I don’t think that is happening right now. Let us see in the second half if those things change.