‘India can sustain its premium’

Admired for his ability to spot multibaggers and envied for his stockpicks, the market has always been eager for Samir Arora?s views. Arora, of late, has been somewhat cautious on the markets more because of the events in the western world. The self-confessed India bull, who runs Helios Capital out of Singapore, tells Shobhana Subramanian he expects the Indian markets to well towards the end of 2010, provided the global markets remain supportive. However, he feels, there isn?t really too much room for India to command more of a premium, relative to its peers, than it currently does.

The Indian market has been fairly resilient; even if the Sensex is more or less at where it was at the start of the year, it is the best performing market in Asia in 2010. Any thoughts on where the market could be headed?

India has already done well this year by relatively outperforming most Asian peers. For absolute performance from here on, we need the world markets to stabilise. I personally expect the Indian markets to do well, in absolute terms, perhaps in the last quarter of this calendar year, if in the mean time the world markets have not given us a scare. In general, it is better that markets are consolidating at current levels because the rally in the markets was very sharp last year and the fact that we are still holding on to those levels is a big highlight. This also sets the stage for 2011, by which time India would have hopefully outperformed for two years, 2009 and 2010, but would be still reasonably valued.

What do you make of valuations, are they expensive? Do you think it?s possible that India will continue to trade at above-peer market multiples for a sustained period?

Indian valuations are in a fair range and need the world markets to be supportive to sustain. India can sustain its premium but there is limited room to expand this premium from current levels.

Do you believe that the projected supply of paper into the primary market, expected in the next six months, of close to $30-40 billion could impact the trajectory of the second-ary market?

We do not expect the projected supply to be so large and is therefore, sanguine. If this number is indeed true, it would put enormous pressure on the market.

In general, quality paper issuance helps the market attract more foreign investors and increase India?s weight in global benchmarks. Also, since Indian retail investors still like investing in primary markets, more than they do in secondary markets, a good IPO helps bring in more retail investors.

FIIs have bought close to $9 billion worth of Indian stocks so far this year with about $2 billion coming in July. How do you see flows into the Indian markets?

We expect FII flows to sustain at these levels and expect continued inflows into India. Global investors over the long-term have to realign their portfolios to reduce US and European equity exposure and increase Asian and emerging markets exposure, and therefore, this is part of a long-term trend that will continue to play in our favour.

What is your reading of the quarterly results that have been announced so far?

There haven?t been too many positive surprises….Results have been mediocre when compared to expectations, but still much better than what the world has to offer and, therefore, global investors? interest will be sustained. Unfortunately, Indian retail investors are not interested in their own market, so their influence and role is limited. The immediate kicker of positive surprises is lacking from the markets currently. However, the bet that investors need to take is that India can sustainably grow over long periods of time due to lower dependence on more volatile, global economy. Indian earnings have historically grown at 15% plus and, therefore, these kinds of gains can be expected in the long term, and are much better than what any alternative asset classes have to offer.

What do you make of the RBI?s intentions to keep liquidity tight and interest rates firm?

The RBI is catching up with the market and this is the minimum it could have done. The key, going forward, is inflation and we hope that monsoons will not disappoint us this time.

How do you read the current macroeconomic environment in India? Do you believe inflation could upset growth targets because private consumption, for instance, hasn?t taken off, or is just about to take off?

Private consumption in India is very strong but investment is still not happening and that would be a problem if it does not pick up soon. We are benefiting from our demographics and our relative attractiveness compared to the aging West?and not so much because we are doing something unique or wonderful. The Indian government has delivered on some of the reform measures like decontrol of auto fuel, but many more things need to be done. The implementation of Aadhar will be a structural positive that will have an impact for years. Similarly, implementation of GST will have a big positive impact. President Obama is expected to visit India later this year and we expect that opening up of multibrand retail and increase in foreign ownership limit in insurance sector will happen prior to that.

Will the slowdown in China (Q2GDP growth at 10.3% YOY compared with 11.9% YOY in Q1) be to India?s advantage? Recent flows indicate that both China Funds and Greater China Funds are seeing large inflows….

We are not competitors to China for such flows. Investors will put more money in India if they are comfortable with China because normally investors bracket our countries together and would be more uncomfortable if we overly outperformed the Chinese market or vice versa.

Which are your favourite markets right now and why?

We only invest in India but even when I invested across multiple markets my favorite market was always India. And I am sure that if I were currently following multiple markets I would have still liked India more.

Within the Indian market, which are the sectors that you like in particular?

We like the financial space, consumption-oriented sectors like liquor, gaming and also technology.