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    Samir Arora on 5 sectors where one can make money in the long-term

    Synopsis

    Long-term money has always been made in retail, financial, consumer, IT, pharma, says the fund manager.

    ETMarkets.com
    Samir Arora, Founder & Fund Manager, Helios Capital, says it is not easy to come on a public forum and say that valuations do not matter in investing. "I would be embarrassed to even subconsciously think like that," says he. Excerpts from an interview.

    I was just looking at your latest tweet on the paint industry. What is it about the industry that is causing everyone to enter it?
    I was saying that even the gobar (cowdung) industry guys want to enter the paints industry. The industry has done well because three or four good companies have done well. New entrants want to enter the sector and Grasim looks like a serious contender because they have money and distribution and some related businesses as well. Over time, it could be good for them. But this will take three-four years and in India we talk only day to day.

    There is the optimism of the Sensex reaching 50,000, earnings are looking good and I know you continue to be positive on the overall trajectory. We seem to have started the year on quite a positive note?
    I am bullish but I do not like the kind of bullishness that is presented these days; as if everything is perfect, that this is the best time for any market or the Indian market. You can be bullish and be a little bit calm in your life instead of getting hyper because that leads to disappointments. Last year in the beginning when Covid cases started spiking all over the world and India seemed little affected, in Singapore, we kept getting whatsapp messages on why we (Indians) are protected from Covid because we have haldi (turmeric) and mirchi (chilli) etc. We got fooled for the first one or two months.

    Today the Covid situation remains very serious. It is not over yet. The UK has just said that they will have a lockdown till July 17. In Singapore, the Health Minister said the travel will not come back this full year and for all industries to get back to normal, it will take two years or three years and this is a country which has near zero cases! look at Germany, look at Hong Kong. It is okay to be bullish but it is an ego trip for each guy to say I am more bullish than the other and this is bigger than the other because if you get more returns, you will not reject them. You will take them and say thank you but you do not have to plan for that and get hyper every morning. Beyond a point, that becomes a bit irritating.

    We are waiting for that new stimulus to unfold and for emerging markets particularly India to continue to see its impact. Paints aside, what are some of the other pockets that are looking interesting, that perhaps you are just keeping on your radar.
    Actually I do not have any paint company. I was saying that those guys have invested maybe for that reason. I go for the same old sectors; I am not changing every day. One formula we have learnt over time is buying at any price is not the correct thing to do because I feel embarrassed as a fund manager to say I missed the bus but how can I come on a public forum and say that in investing, valuations do not matter? I would be embarrassed to even subconsciously think like that.

    The three areas we like are financials, consumer and IT and pharma, which in the last few years has become IT, pharma, speciality chemicals and then once in a while some other stocks where some specific thing is happening. The question is whether the Budget will make me change anything. As of now, that looks unlikely because nothing is planned right now in our mind or whatever. We have read that there is something happening which could make or mar the prospects of a sector.

    Maybe on real estate they can do something more specific. Then we can see whether it is really big or not but otherwise it will be more a general thing. Suppose they say that we are cutting some taxes and some consumer companies might benefit but all those things will get discounted in a few hours and then we move on. So broadly these are the sectors that have worked over time not just for me but most. Look at the Forbes billionaires list and divide all the billionaires into which sectors they come from because that best represents where long-term money has been made. It is always from these three themes – retail, financial, consumer, IT, pharma. It is never from cement and steel. Look at it because of the dilution that is required along the way for those companies to get to big sizes. In various phases, something might be doing better for one or two years, which sometimes we are able to get but mostly we fail in that. So, we have stopped trying for many years.

    On the financials we still had a smattering of numbers, some are still due. Everything seems to be pretty much in line or above estimates. What do you think?
    Financials have played one more role which even I did not know which is that when people suddenly started talking of unlock trade and we did not really have these pure unlock trades, suddenly we found that our financials did very well and so we did not miss these other unlock trades in November and December when this swing from one part of the market to the other was going on in full swing. They have done their job already for me because the good thing about the financial sector is that they can change their character as the market wants them. If the consumer is doing well, the same financials will do well because they are exposed to the consumers and they lend to the consumers and where there is some RBI decree, it helps them basically because financials are underpenetrated in India in terms of loans to GDP, mortgage to retail, or credit card density or how many cards they have. All are underpenetrated and then we have still weaker PSUs and some NBFCs which get into trouble every now and then.

    So, the stronger NBFCs and the private sector banks -- 3-4 of them, although a few years ago there were 7-8 -- would be contenders for a portfolio. So, in that sense there has been a lot of churn in this space as well. So it is not straightforward but yes, these are like paint companies which are doing well till 20 more guys come in and then we will see.

    On the subject of concessions to beleaguered sectors, one very dominant factor could be the uptick in commodity prices. Cement, paints and the commodity stock prices have had a massive recovery from the March lows and the growth numbers justify those prices. So maybe whatever the budget does is going to be a little late in the date?
    The corporate sector has enormously helped the government. One beleaguered sector is the restaurant sector. But everyday there are tweets saying all my restaurants are full; suddenly the airline guy says my traffic is up; then the theatre guy says my theatre is about to get full because two movies are coming. So nobody is raising his hand to say I am beleaguered because they are stuck between trying to please the market for the next 16 days or two weeks or four weeks and generally telling the government what their problem is. So right now there is no problem in any sector in the economy and therefore the government has a free hand to do what it wants.

    Everybody is trying to please in the very short term and nobody is willing to admit publicly there is a problem and if there is no problem, then no help is required! But if you look at it as an investor, it cannot be the case. There will be winners and losers but right now nobody is willing to say he is a loser and therefore nobody needs to be helped because nobody is admitting that they need help.
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    8 Comments on this Story

    Sonali bhatt34 days ago
    Always there exist stocks that can turn your 1 lakh to 1 crore, it is investors who fail to identify them.
    An avid admirer of Raamdeo Agrawal is giving his 10x and 100x ideas on his twitter handle: @niftygranmaster using fundamentals and technical research work and backtested learning of 20 years.
    Get the identified stock names on his twitter handle: @niftygranmaster. Interesting part is that he is posting all his hard work on this twitter handle without charging anything- neither explicitly nor in any hidden manner. His twitter handle has more than 3000 followers.
    Sandipan Kar35 days ago
    Someone starts the first move and everyone has no choice but to follow. Big corporates coming out with quarterly figures have to follow those who gave a rosy bottom line. Each corporate has to play with books to remain relevant.
    People are now questioning the way Reliance have presented their December figures. That unfortunately is the reality.
    Sanjiv Dogra35 days ago
    Every industry captain fear to talk abt problem due to backlash and targetting by Govt.Every one wants to paint good picture.Rajan has been targetted for pessimism by even Rakesh Jhunjunwala for voicing cautious approach.These broker like Rakesh inly paint optimism because they fear loosing money he they talk truth.Very dubious siruation in India
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