bear market: We are in a bear market that is about to end in a few months: Samir Arora

“Let’s not go with the story that in the long run this happens, in the long run that happens because in the long run it is in the long run. Right now we are in the short term. It’s like saying we can’t predict whether a person will have an accident or not, but we can still tell them not to stand in the middle of the road when traffic is coming,” he says. samir aroaFounder, Helios Capital.

What do you think about the construction of the market?
I have to be cautious in the market as I have been for most of this year and remember that we will not really settle down until the US market stabilizes and even yesterday the Nasdaq was down 1.4 percent. If you look at the previous big drops in the US and maybe the rest of the world, you usually end up with the Fed going in heavily or the government going in or someone coming in to support in some way. All of this is not only missing but right now they are on the other side and the valuations have to become much cheaper. The US market has not settled and I don’t think the Indian market can settle either.

So he remains absolutely cautious, but we’ve also seen blue chip fatigue. Does it look like there is a rally in the broader markets?
Starting in January, even in the US, the problem started with the fact that the inflation number was higher than expected and therefore interest rates had to go up. Therefore, the valuation of companies in India and the US will be similarly reduced. But what has happened in recent weeks is that the earnings themselves are not up to par either. So one fact was that the valuation will be lower because the interest rates are higher than where the real value comes after or from years of growth. Those will be affected simply because the discount factor is increasing.

But in recent weeks, neither in the US nor in India, even the regular results coming out are not as expected before. For some of the stocks that have gone down a lot in the US, it has simply to do with the fact that you don’t want high valuation companies now, but for many others it has been because the results have been worse than expected.

Similarly, in India, banks, tech companies have barely lived up to their expectations. We remain bullish in the sense that we are invested in the market, but on the sidelines, I don’t want to celebrate every 0.5% move in the market because I think the whole move is not going to be over in a week or two. It could end after two or three months when the US market has fallen a little more or a lot more.

But if it doesn’t fall, then we have to see that the actual withdrawal of liquidity by the Fed is pushed to the limit. Although many of these things were predictable not too many years ago, a few weeks and months ago they still want to see it through to the end. So I don’t think they’ve discounted anymore or know how to handle withdrawal of liquidity and things like that.

In India the story is much simpler. One has to be a bit cautious because every night these guys come and sell Rs 3,000 crore worth of shares, except maybe yesterday when they sold only Rs 1,700 crore. We can’t pay Rs 300 crore every day if it keeps coming and when it doesn’t for a few days, we’ll say a problem is over, but at this time, it’s not completely over.

Has the bear market started or is this a bull market correction? If this is a bull market correction, maybe we have to wait?

This is a bear market, not a correction. The bear market has occurred in many stocks. It would be better if we could say that it is a bear market that will be over in a few months because bear markets don’t normally go down 50%. It was only in 2008 that they fell by 50-60%. So a bear market is where you can see a 25-30% correction and in a sense also in India a lot of stocks are down 25-30% or more.

So instead of calling it a correction in a bull market, it is better if we say that it is a bear market and it will be over in a few months because the duration of the bear market does not last for years. Even if we look at 2008, we can say that it started in January 2008 but ended in March 2009, but in reality, if one had been a little protected, one would have almost escaped.

We don’t run away saying we’re protected. What I mean is that the duration of the real fall is only seven or eight months. Even in the year 2000, it can be said that it started in March-April 2000 and then almost ended in December. But then the following year, when he was recovering, we had another problem, which was 9/11. So if you look at the CY2011 numbers, they look really bad, but that was because there were two events in a row. So don’t call it a correction in a bull market, call it a bear market that is about to end in a few months.

I am a compulsive bull and let me argue that all the bad news is perhaps in the price, whether it is oil, the Fed or the war. Don’t you think the markets are already factoring in all the bad news?
That’s normal. I am a bull and I am 90% invested. In the long run, wars don’t matter either. If you look at the World Wars, the Iraq War and others and look at them on a graph right now, the war doesn’t matter.

But if we are in the middle of a war, does the war matter or not? We say and a lot of fund managers say we don’t predict inflation, we don’t know macroeconomics, but if the inflation number is high right now and the Fed or RBI of India just caught you in a panic then we can say that for a month or two we are going to see what it is instead of saying that we don’t know about these things?

We don’t know if it was discounted or not, but just a week ago, there was a surprise panicked rate hike in India. So all I’m saying is that we’re not bears either, bears by no means. All I’m saying is let’s not continue with the story that eventually this happens, eventually it happens because long duration is long. Right now we are in the short term. It’s like saying we can’t predict whether a person will have an accident or not, but we can still tell him not to stand in the middle of the road when traffic comes!

We can say that we cannot predict a war, we cannot predict some episodes of bad things in retrospect, but in the midst of that, one can be a little cautious and not say every day that everything is discounted. First of all, I don’t think anything is being discounted simply because for 25 years I have been saying that India is a beneficiary of the demographics of the young population and I continue to say so. How come we don’t rule this out? Nobody lowers anything.

For 25 or maybe 100 years, we say America is a great system, it encourages innovation, it encourages businesses to grow and it encourages businesses to die. He is very flexible in his rewards, failures and gives a second chance. Why hasn’t this been downgraded?

When will this bear market end? What will happen and where will leadership emerge?
My opinion is that it’s better to call it a bear market because then we can imagine four or five years of a bull run instead of calling it a correction in a bull market and meaning another bear market is coming. My view is that the US market is falling at a rate that will, in a sense, make it sell off faster in terms of some value emerging.

That will be a signal or any trigger to the rest of the world that may not be directly involved in the sense that it may not be our problem because our inflation is not high and so on and so on and then we start again. But the long-term themes will not go away.

If you have a five year perspective what should you do with 100% of the money because we also invest 88-90-85% and 10-15% when we try to be cute about it; but the long-term issues don’t just go away because those are the world’s issues which are finance, consumption, technology.

The Forbes list of billionaires is a good indicator of where this wealth has been created because it represents everything that they have done historically and what it is today will come from these three or four sectors. Every now and then one can pull the plug and buy an event here or a company there, but thematically the three themes of the world and particularly for India, it will always be finance because that’s a growing sector because the economy grows at X, financial sector grows at a point X times X, we are underpenetrated and underleveraged.

We also have so many consumers, technology and pharmaceuticals because we are cheaper than the world in terms of producing these things. There will always be these three themes day after day.

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