MARKET MAVENS | ‘IPOs don’t excite me,’ says Samir Arora

Nifty and Sensex have recovered from ir losing streak and global markets are picking up on ebbing of recession fears of US, with Goldman Sachs lowering probability of US recession by 20 percent. What is driving Indian market space? What are coming months going to look like for Indian markets probably? Mr Samir Arora, Founder, Group CIO, and Fund Manager of Helios Strategic Fund shares his exclusive insights with Republic Business.

Republic Business: Given your long journey and a long career as an investor does Indian market still excite you? 

Samir Arora: I took a big bet in 90s when I lived in US and said that India looked good, and I got to enter ir market. So to give you a big picture for last 25 to 30 years, Indian market is number one performing human market in world in dollar terms. So, India is looking exciting now. But generally, India as a market has done well even in past, if you look at it over last five years and ten years and 15 years and 20 years and 25 years in all se periods. India has done very well and is mostly number one except in last few years. US has done better than India. But India has done well for long. So, refore, it is not a surprise that it is doing well now with both bottom-up reasons and good policies and new interests in India from world. 

Republic Business: Given way market has been performing, what are a couple of tips to remain calm and calculated while making market decisions? 

first thing is to understand that normally in long run equity markets do very well compared to or asset classes and this is not an India story. re is a lot of data on this which you can find on net that in any country equity market returns compared to fixed income government bond kind of return. average difference between se two is five per cent per annum and this re you can see this data for 100 years. For some markets where 100 years of data is available and it works across markets and longer periods like 10-15 years, only issue is that this return does not come smoothly. Never will you get five per cent more. Eir you will get 20 per cent more or 15 per cent less which means eir you'll be +20 next year, be -20 and so forth. But over longer periods it comes to being five percent or so higher and this number is called Equity Risk Premium. So, only thing to understand in equity market is that on b days do not panic, you may stop putting in new money, you may change your stocks, you may change your fund manager. But broly understand that overtime equities will do better. 

So, once you accept that and if you don't accept it from me, please go and search on Google for equity in this premium across countries across periods it always works out broly speaking like that, and refore we say that only thing to understand is that on b days you may not d you may be nervous. You may even take out five percent if you are becoming too nervous. But broly understand that over time equity will beat everything else. 

Republic Business: Over years, you have h some very strong positions when it comes to certain sectors. What do you think are going to be winning sectors for Indian marketplace in long term? 

First, if you look at big picture, re are three sectors we drive in world se are for like 70-80 percent of money and this is not only in India this would be true worldwide, but this will also be financial sector, consumer sector and tech sector. And how to know that this is true again? Look at Forbes Billionaires list. So even for India, it will be this case that your three big mes for a large part of your money will be in consumer sector, financial sector, IT sector, and n now and n based on some government policies, some global issues, some local story you will say I like defence and I like commodities or I like something else, but those are never going to be 20-year-stories. 20-year stories will be se three sectors’ big picture. Of course, once in a while, you may find something from re. So, we are always in se three mes by design. Overall, we still always like financial sector as number one consumer broly as number two and IT broly se days as number three. 

With vent of artificial intelligence, and blockchain, way people are betting on market is going through sea change. Does it bor you or do you think it's a huge vantage? 

y are not using it to get into stock market. You may invest in an AI company but very rarely, at least in India, we found people using artificial intelligence to invest in market. Also, re might be a handful of companies that may invest in NVIDIA or some beneficiaries of AI. But broly we are not using AI to invest in market, yet we must see over time wher se models or systems can do better than fund managers. So far, we have survived well. blockchain or if you are investing in some Bitcoin or or thing, those are competitors to our market, y are not our market, and I have no investment. I have no faith re. I’m interested in my market because as I said I've also got about 30 years of experience. Coincidentally, during se 30 years, Indian market has been best-performing market in world. And n if you do better than market, you're broly doing better than literally anybody in world. Somebody may separately invest. Please do. But Indian market doesn't have those opportunities or even actually world doesn't have so many of se opportunities yet. 

Republic Business: entire world is interested in what is happening in India. So, if I am an outsider looking into Indian market, what are my opportunities right now and what are my challenges? 

Samir Arora: Indian market has done well in past but now people are accepting it more because if you do well while you are big n y cannot easily ignore you. So, thing is to do it with scale. It's like saying a small CA company where people say who cares, I don't buy small caps. Now India is 4th largest market in world and 5th largest economy in world now when it goes up 15 percent, a foreign investor can say I don't care because it's a big market and he could have invested say 20 years and he could have said I know you're doing well but you know you're too small for my big size fund and all that plus India is also getting helines. Plus, China is doing bly se days which is mostly to do with policies that ir government has taken. 

fact that China is not doing well is also making India shine because ultimately in funds that are investing in India, many of m are investing in emerging markets and it was China previously. refore, people are observing that interest is very high, and challenge…that Indian taxes for foreign investors are very high. Foreign investors when investing in or countries like any investor investing in some or country, basically tax rate in that country for foreign investor is in 100 percent of or countries zero. So, for example, a US investor investing in China, a US investor investing in Korea, in Tainan, a Korean investor investing in US and UK all have zero tax. 

In India, tax state is re's no difference between foreign and domestic investors and that makes foreign investors a big challenge. refore, over time India has to do much better to have post tax returns similar and that is going to be a challenge. But still returns are good. 

Republic Business: Talking about global geopolitical situation and American markets, recent Goldman Sachs report has reduced risks of recession in US. How will all this impact Indian market?

So first thing is that US interest rates will start cutting from September and right now issue is wher good news is good or b news is good because if news is very strong, about economy, about unemployment being low, about wages growth being high or retail sales being high,  people say oh my God! now Federal Reserve may not cut interest rates and so you don't know which you one to celebrate a little bit.  Basically, you want that is why y call it Goldilocks economy you are not growing too fast for anybody to feel that interest rates not be cut, and you are not growing so low n rate that even interest rates might be cut. But economy is doing bly. So right now, it looks okay. And what India needs is not that y must do very well, but y should not do very bly as a market. What I learned after 2008 was that we cannot say we are an island. We cannot say. Oh, you know my company is not affected, my company does not sell to us. It doesn't matter what is recession re or a b stock market re. In end we are all connected. If you're a little bit b, little bit good, nobody cares. You can say we are independent; y are independent and stuff like that so far now y don't look b, which is enough for us. re's no reason to feel negative on US, eir on economy or on interest rates or on corporate results. This thing that is a financial investment and foreign investors losing re, how can y invest here? Indian investors will say rest of world is doing bly, we are re-living in our dream, and things like that. But so far everybody is okay. 

Republic Business: IPOs are on market calendar every day. Not all companies entering market can do well. Do IPOs excite you?

Sameer Arora: IPOs don't excite me previously my thumb rule all my life was always at once you have too many IPOs, that’s peak of market. But now what has happened is that domestic flows which were not re in se previous episodes of a bull market are re to absorb it, but you're right. big picture – you cannot have so many companies doing well simultaneously because it never happens. And now a days anor issue is that seller is not company so that y can say okay, I'll sell 15 percent. I still own 80 percent of company and when stock does well, I will make money, so it doesn't matter what price of what I sell for first 10-15-20 percent. Now seller is mostly a financial investor, a private equity fund. And private equity fund. He doesn't have anything left, he wants everything now because he's also likely to buy a financial investor right, and he might have 5-10 percent, and re might be five such private goody guys. So even when y sell first time, y're still re wanting to sell after three months and six months. And so, in many cases, this will not work. I think, but it's a go-run right now. So, everything is working. 

Talking about IPOs over last couple of years, we've seen startups taking recourse to market for a funding route, but some of m have been received shocking response while some have scraped through. But market is very smart when it comes to fundamentals for those who are trying to go for it. And re are some startups which have not been able to make an entry at all despite trying multiple times. So, what is most important are fundamentals of a company before it wants to foray into markets.

market will fund when that startup has some three four-year histories at least. To show that re is a path to making a profit, it doesn't have to make a profit on day one like Zomato also was not making, Paytm was not making, but y could at least show that we are nearly re or we'll be re in one year, two years n market can handle start-ups means you are on day one or first year than market. This is for private investors and se PE guys and venture capital guys and mostly high net worth individuals who are willing to. Stock market warrants. Broly, y should be able to see that quarterly you will have this growth that you will not be saying that one quarter is up, one quarter is down, that kind of thing stock market does not like and refore in that sense our ability to see fundamentals more because market does not buy in beginning. Which is why se prices fall. But one day you can say I'm going to start mode, give me money and let me try and work out, which is what happens when y get money in angel rounds where people are betting on individual and big picture idea, stock market will not have that. That's why stock market is very good. It's much better than all se private investments that people make, even though you sometimes hear a private guy who invested in one has me a lot of money, but we are talking about collectively not talking about 100 people buying startups, one guy making a lot of money and 99 guys losing and guy who's losing cannot tell you a story because he's embarrassed, and guy who me 100 times and say he I me 100 times, but collectively y didn't make any money. stock market is that broly everybody makes money. 

Republic Business: India is becoming increasingly young and with that age group which is now interested in participating in market is in ir early twenties. Being a veteran, what are a couple of tips that you have for this young age group so that y put ir energies where it is wanted when it comes to navigating market space? 

Sameer Arora: first thing is that y overly are spending ir energy on market while y should first build ir careers. Making money in stock market as way it has been me in last 3-4 years is not normal. So please don't leave your job thinking that because you me 25 percent ten or 40 - it is not going to last. So refore, first thing is to bring down your expectations and second is for most of m, or than somebody who turns out to be a student at this, it is to first concentrate on your career and n invest your surplus or your time or make it as a hobby or spend two hours a day. I think that is important because right now what happens is that you as a percentage make a lot of money for first few years because of having started in a bullish time which is post-Covid. overconfidence of young I can see on Twitter and that is not going to last, y will have to pay a learning fee someday. re is no way you can escape that unless you now become disciplined.