It does not matter if it is a bull market or a bear market, Sameer Arora always has a Punjabi tadka in his voice every time we interact with him.
Absolutely. And why not?
It looks like the worst is behind us at least in the interim. Flows have stabilised, RBI has not increased rates, the valuation concerns are also getting addressed. Is it advantage bulls now for the rest of the year?
I have been saying that for some time now and I expect this year to be positive and double digit positive. Some of it got delayed a little bit because I was expecting the US to have settled down when I was saying this at the end of last year. That has got delayed a little bit. But you are absolutely right that the worst is over and things are stabilising. Though performance wise India has done badly, we can say that it is related to China and others.
But every day if you see books, if you see discussions, if you see Twitter, if you see The Economist cover, everywhere this issue of China versus US is heating up. And that has a big influence on big picture flows into China and corporates going into China and everything associated with it.
India is a beneficiary on that big picture theme and it will be a beneficiary for many years but on the margin, it is a big deal for India.
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Can we assume that the local crisis, which was largely because of the Adani issue and trade deficit, is behind us and the global crisis which was largely because of inflation and US regional banks is also over?
I do not think what is happening to the US banks is over. We are hoping that the system can handle it because the actual losses in terms of mark to market losses and what percentage they are of US banks and particularly smaller banks and regional banks that number may be quite high which basically means that the system has to remain in stable condition, so that there is no panic triggered by these things.
I think that is one angle on which I do not have a strong handle as to how to do it beyond just being strong. That means for the Federal Reserve or for the FDIC and others have to be signaling that they are there for any bank that needs their help. Others are over or getting over.For the longest time, you have maintained that you have not liked IT and that call has worked like a charm for you. But after the bout of recent underperformance, is it time to think contra now?
So far I am thinking that I will be able to handle any pain if IT does well immediately because it is not likely to do very well but it might go up in line with the rest of the market. In that case I do not mind. But right now, I do not see any reason to step in immediately. First, let us see the guidance of Infosys; TCS, I guess, will not give any guidance. But a piece of news came recently that one of these companies is not honouring commitments to freshers. That is as bad as it can get.
You may say buy when things are bad. But as you separately see, our Indian system does not accept openly that there is a slowdown. They say we will be beneficiaries of cost cutting plans and companies will consolidate and stuff like that and IT is the key thing. Let them accept it, let them say it in a few quarterly calls and all that and then we will see.
Right now, I am not thinking that they will underperform a lot. I will just stay out now.
Let us understand the case. If I look at the markets in terms of commodity consumers versus commodity producers, last year was all about high inflation, impact on margins, decline for commodity consumers. Is the reverse trade at play now for the next couple of quarters?
I do not think that reverse trade is at play, at least we are not playing that which would mean that these consumer companies that had very high valuations and which were hit by both high valuations and lower margins because of commodity price rise. Right now, the slowdown is still there. But more than that, there is this phase where the market does not like very high valuations for companies that are growing below the normal market rate. That means they are growing 8%, 10%, 12% per annum and expecting that they should get multiples of 40 and 50 on earnings.
People can keep saying no-no you should not look at earning, you should look at some other nonsensical number. But the point is, in the end, earnings takes care of many of these things for such companies which anyway converted a lot of their earnings to cash with or without anybody analysing it. So the thumb rules work in most of these long held or long valued companies which have been around for so long that the valuations are out of line. Also the slowdown of the consumer has not gone away and so it will benefit, but we are not playing the reverse trade yet.
If somebody has to invest your way, will it be again buy into urban consumption, banks, because that has been your way for the last 12 to 18 months? Names like Manyavar or Campus?
No, actually, that is not my way. My way is that I buy 20 to 25 companies in the second group where I am buying them a little early or sometimes when they might be expensive in somebody’s view. But overall, I am playing with 20 to 25 companies along these three themes of which today I do not have one theme, which is IT.
But otherwise, the three themes are financials, consumer and IT generally. And then you let the market decide or these companies decide how they evolve over time. It is not to say on any one name that this is the name we have found, but in the group of 25 names, mostly enough outperform to make the whole portfolio outperform. So play it like that instead of committing to any one name, both your money and your ego beyond a point.
Let us also understand your view. I know we have always spoken about this, but maybe you want to revisit some other new age tech names in the portfolio now, given the kind of strategy that these companies are adopting. Do you think that this space deserves a relook?
We have two names in these 25 names, which are Paytm and Zomato. Paytm, of course, because of good timing, we are up some 20-25%. Zomato, we were up and then it went back, so now we are zero. But both these are big brands, big survivors. We read recently that Reliance is coming into cosmetics or trying to compete with Nykaa. But no new company is going to say that we are going into food delivery or going into even payment business so easily. Therefore, these guys are now in a place where previously there may have been 20 guys and now they are in the case of food delivery down to two and there is no way a third guy can come in. And in this, one of the two is unlisted.
If they compete too hard and think that by getting a few more market share points here or there, they can have a hope of getting listed; that also does not work unless Zomato does well. So I think that the steady state solution will be that Swiggy will back off, let Zomato win a little bit in the market so that some years or maybe one year later, it can hope to go public. Otherwise, it can keep fighting without having the ability to get listed because the market will not accept a second name in exactly the same business with nearly exactly the same market share, with nearly exactly the same number of riders, with nearly exactly the same number of restaurant partners and the first guy not doing well. It is just a big picture in this case.
But beyond that, it’s an option because the second business which is Blinkit also seems to be progressing well and over time, that would be worth a little bit on its own. Plus both these guys, that is Zomato and Paytm have a billion dollars cash. So it is okay for now. Both are optionality businesses and so far, so good.