Why Samir Arora will continue to avoid IT and commodities for now

Cathie Wood was hero for 2020 and 2021. Never again in her life will she have that kind of success and the benchmark will always be that she made 70% and 80% in a year and because you are so narrowly focussed and it’s now over, somebody else will come in,” says Samir Arora, Founder & Fund Manager, Helios Capital

It has been a good year and despite the odds – global geopolitical concerns, fear of inflation, net outflows, fall in China – Indian markets have done rather well. Is the party here to stay?
This year we have done relatively better. We would like to do absolutely well, which I think will start after the Budget and not because the Budget will be good or bad, but the fact that it will take two, three months for the US situation to settle down. The minutes of the Federal Reserve showed that they are now going to slow down, but this has been known since the last press conference that from now on, they said that the slope of the rise will be less, which means instead of having 75 bps rate hikes, they might do 50 bps and then 25 bps. The end number will be around 5- 5.25%, which is not low by any standards, particularly if we are used to the easy liquidity of the past many years.
But one way or the other, the US market will settle down in the next one, two months and by that time, we would be ready for this thing post-budget rather than pre budget. Otherwise, I think India will perform in absolute terms in 2023.
Just to tell you, in the last 26 years that I have been managing Indian money, only twice has the market been negative for two consecutive years, which was in 2000 and 2001 and there you could say that 2001 might have been positive if 9/11 had not happened. Otherwise, in my 26 years, I have not seen two negative years although you could say that this year is not negative, it is zero in rupee terms.
Ultimately the markets will follow earnings and if I look at the sum total of the earnings for the quarter gone by and am keeping banks out, there is a base effect there. The aggregate earnings are down and brokerages have slashed their price target. What happens to the scenario then?
I wrote to my investors that we will keep commodities out. Why should you take out banks? What you should take out is commodities because if commodity profits fall in a big picture sense when commodity prices are lower and in a sense we know that commodity prices being lower at the end of the day we like it personally as a fund manager but even the Indian economy and markets at the end like it if commodity prices are in check. Ex commodity, we had 30% growth in earnings this quarter over one year ago.
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When you wrote to your clients that the right way of looking at India is to take commodities out, what did they reply back?
They do not reply. In a while somebody asks and then we say we do not invest much in commodities or even 1%. So everybody is happy if it is the commodity guys who are doing badly.

What is your outlook because Cathie Wood in her forecast is talking about Bitcoin at a million?
I never even asked anybody how to buy a Bitcoin. The private bank guys started saying that we can get you if you want them in your private bank account but I never bought by mistake. I bought the US exchange coin but I lost some 30% in a few months and sold it off. Other than that, I did not go anywhere near it. But the problem with Cathie Wood’s statement is that if you say that it is going to be a million, then in theory that should be your number one holding in your fund. It may not be 100% of the fund but because she is saying that Bitcoin will be up 60 times from $16,000-17,000 and to go to one million. If you think that is really going up 60x, then you should have the maximum percentage that you are allowed to have in your fund and she does not have that.
Hypothetically, if we are doing the show again Chaat Pe Charcha and this time it is not Dinshaw Irani, it is Samir Arora and Cathie Wood, what is the first question you would like to ask her after this prediction?
By the way, Cathie Wood and I share something in common; we both worked for . She also was in Reliance Capital.
So now you know her, all the more reason to ask that question?
No, no, the thing is the secret of my longevity as a fund manager is that you do not overdo anything. From the ‘90s to now, every two, three years there is a new hero and then that fellow says I only do this and that time it is working and so he is followed and everybody likes his fund and then he disappears from the face of this earth by either being blown out, burnt out, fired, retired but mostly because that sub theme stops working.
You could see that somebody said I only do midcaps and one guy says I only do smallcaps and one guy says I only do quality. The one guy says I only do largecaps, one guy says I only do commodities. Basically this market is bigger than what any one guy can come up with. So it is possible that over a cycle, everybody does well because everybody’s turn will come but if your nature or your customer base is such that you want this ongoing thing, you cannot be that narrowly focussed.
Cathie Wood had it for 2020 and 2021. Never again in her life will she have that kind of success and the benchmark will always be that she made 70% and 80% in a year and because you are so narrowly focussed and it’s turn is now over, somebody else will come in.
Around Diwali time you said for the first time in 26-27 years, you do not own a single IT stock, Have things changed since Diwali as we head towards Christmas?
It can change, the thing is and are up but they have still underperformed all the banks and mostly they have underperformed at least the banks and financials. But my point is that just a few weeks ago, suddenly Meta and Google and others started saying sorry we wrongly took this year to be a growth year and we hired so many people blah, blah, blah…
A few days ago, there was an interview in Economic Times where said the long term is very good. We also know the long term is very good. Right now, the guidance or whatever has to be for the next 6, 9, 12 months. It cannot be that nearly every tech company in the US is reversing, not just slowing down and we say it does not matter.
So, they will disappoint. First of all, there is no guidance in this quarter and I am not overly panicking. By March we will see what happens but as I said, they can do well but it is unlikely that they will outperform.
Our view has gone wrong this year on two accounts, not on tech but before that in a big picture sense that even though I thought I got this thing that the US inflation is very high and that the Federal Reserve will be very strict because of the initial comments but it did not change my market. The market did not fall but things connected to the US fell and I do not think even now the US after its initial thing is going to have a big rally.
If you look at the previous rallies in the US, they are accompanied by not just a stopping of interest rate hikes but by a cut or by injection of liquidity which is in response to a panic by the system or by the Federal Reserve. This time, it is clear that they will not start cutting rates till maybe the last quarter of 23 if at all.
So, if we are going to be connected to the US, why should we actively go seek IT stocks? The whole idea is India is doing well in theory and the US is supposed to be under attack and Europe is doing miserably; why then should we go and actively seek those things saying that the stocks have corrected?
For example, recently one broker wrote that you should buy IT because the premium of IT over the market over Nifty or whatever has become average. I wanted to ask him when things are below average? They are below average when India is doing well and the world is doing relatively badly. It cannot be that everything is average or above average. The last few years were above average, now it has become average and therefore a buy. But what about below average? When does that happen? It happens in my mind in these situations, this kind of environment but who knows if it is okay?