US interest rates should come down by early next year: Samir Arora

“Unless you think that this is, as you said, the start of a 2008, I do not see that right now, because we have learned how to use tools that are available to these governments,” says Samir Arora, Helios Capital.

What is the message for investors out there? Of course, for long term investors, this perhaps could be a good opportunity to buy. But for the short term guys, what do they do? Wait for the dust to settle down?
Well, short term also you have to define what is short term but broadly speaking, I say differently. I say what you do depends on what you have done. That means if your net is low, you can cover some shorts. If the net is high, you can let it be. If you are a new investor and who anyway does not even have 20% in equity, it should not matter. But broadly, I still believe that the end of this year, the Indian market will be higher than it started the year with a), for us, we will benefit a little bit from the currency and b), whatever may happen now, definitely by third, fourth quarter, the interest rates in the US will not be reduced. But the markets may start expecting that in the early next year, first quarter, the rates will come down. Also please look at it, if there are so much issue with the banks and people losing their jobs, it must be also a little bit disinflationary. It has to overall cast a little bit of a gloom on the US job scene and everything. So that itself might bring the inflation expectations down, maybe 10 basis points. So I think by the end of this year, US can look forward to lower cuts next year. And therefore, plus minus a few months from here, the world will move on. Unless you think that this is, as you said, the start of a 2008, I do not see that right now, because we have learned how to use tools that are available to these governments.

If the world slows down, it will definitely have an impact on outward looking sectors, IT, to some extent pharma, metals. So the aggregate numbers surely will be weak. And if you are looking at the aggregate picture for the Nifty or the aggregate picture for the Indian market, that could be marked down. What happens in that scenario?
I agree but, I do not look at aggregate numbers, particularly the numbers coming from the commodity sector because what happens is that if you look at the say 100 stocks, and if you take out 70, 75 stocks or 70 stocks, broadly, they operate in more consistent, regular fashion in terms of growing their earnings 10 to 15%. So look at them.

Consumer sector broadly grows in 10-15%. IT sector broadly grows in 10-15%. Private sector financial broadly grows in that range. What changes the estimates of the consolidated or the index is that Tata Steel or Tata Motor will make $2 billion or lose $2 billion and mostly lose $2 billion and therefore, they just change the consolidated numbers of the market, but do not really bother 80% of the companies. And if you also look at it today, if you see that, Indian premium to emerging markets used to be 70%, it has now become 50%. If you see really what has happened is that the Chinese market which was down, went up a little bit and Indian relative premium to emerging markets became a bit more normal.

It was so specific, so narrow to give it these big picture things that Indian premium is high and then suddenly Indian premium is in line, just because the Chinese market went up and down. It is the same thing here. If Tata Steel or any of these commodity companies earnings get added, please note that these companies get very low multiples. Therefore, earning contributions from commodity companies should in any case make a lower impact on the index. Therefore remove commodities. Now talk ingabout IT, I do not like IT myself. So I agree with you on that.

In the event that the market would recover from here, which you do believe by year end, you know, all the dust would settle down and India would be resilient and outperform perhaps the rest of the globe. What happens to banks because if the index has to recover and cover the losses, banks because of their weightage have to perform well? And I purely ask because, , within banks, the performance of each and every cluster is just so bifurcated and divergent. What the HDFC twins are doing is completely different from what a Kotak has done, what the PSBs are doing or what an ICICI Bank and an SBI together or for that matter, IndusInd and Axis are doing.
We broadly like all of them in some form or the other, except in PSBs, we restrict our interest to State Bank of India. Relative to India, I think it is the best sector. And although it is not that I bought yesterday or day before, but this fall looks a bit unreasonable and it is just this, the macro guys or the guys who manage money in 30 countries who really do not have time to individually look at stocks, but do it more as bets on either country or sectors who are the first level will say that bank is doing badly so I must sell. But little bit a correction even I agree happens at a sector level just by these commonality of investors across markets. But I still feel most confident of banks than about consumer and third about IT.

Just a view largely on the back of this SVB fallout we are also seeing other asset classes, for instance, gold, crypto, surging, we have seen the dollar index as well being impacted. It is down now to about 103. What is your view on some of these other asset classes in light of what we have seen take place?
I do not do crypto. Gold I own myself, but that I am not doing it in a professional manner. Like I am a fund manager for equity, so I do not have much to add. But gold has in the end proven itself over the years. And it is worth it to have 10-15% in gold just as a buy and forget kind of a thing. I did this buy and forget in 2007 after the crisis of 2008, and it is lying somewhere in some physical form.