‘Raising funds from investors will be easier’

This is an economy- and market-friendly Budget; it reflects a change in mindset and a bet on growth that we haven’t seen to this extent previously

The markets witnessed the best Budget-day gain on February 1 after the presentation of Finance Minister Nirmala Sitharaman’s “never before” Budget. SAMIR ARORA, founder and fund manager, Helios Capital, in an interview with Puneet Wadhwa, says that with strong economic revival, investors will have more choices to invest, and medium-cap companies should also do well, going ahead. Edited excerpts:

How do you interpret the Budget proposals? Have the markets celebrated too soon?

This has been an economy- and market-friendly Budget, because it reflects a change in mindset and a bet on growth that we have not seen from the government to this extent previously. The government is looking at the future with confidence and playing on the front foot. Markets were strong on Budget day, not only because of an excellent pro-growth Budget, but also out of relief that there were no adverse changes in taxes for investors or consumers. Good results from corporates and the steep decline in Covid-19 cases also is helping sentiment. Markets were also helped by the fact that there was very light positioning by participants due to the weak performance of equities coming into the Budget.

As a foreign institutional investor, are you likely to invest more in Indian equities over the next one year in the backdrop of state of the economy and the Budget proposals? What are your key concerns now?

We will absolutely look to invest more in India this year. However, for this we have to raise more funds from investors, which will be (relatively) easier to do with this Budget.

Do you think the government has set itself another stiff divestment target for financial year 202122? Is the listed public sector space likely to draw more investor attention in the next fiscal?

The divestment target is stiff and markets will track this closely. Government should try and quickly close the easier deals already announced — BPCL and Container Corp — to build momentum. Sale of Air India would be a big deal, anyway we look at it. Privatisation of two state-owned banks is also a very important announcement, and we have to see how that goes through.

There have been a host of proposals for the financial sector — from setting up a bad bank to higher FDI in the insurance sector. How realistic are these? Should investors stock up on related stocks?

FDI in the insurance sector is very realistic. It needs some legislative changes, but that is all within our own hands, and therefore can be easily done. Setting up a bad bank is a more complicated exercise.

Most of the big events lined up for the first few months of 2021 are now over. What are the next set of triggers for the markets?

If markets only looked at big events to do well, life would be very tough. The reality is that if the economy does well and there is a sharp recovery over last year and global markets remain benign, our market will do well, as foreign investors resume their buying. Indian investors have been redeeming from mutual funds over the past few months, and they may suddenly have a feeling of missing out.

How concerned are you with the market valuation at this stage? When do you see the markets start focusing on corporate earnings?

The market is always focused on corporate earnings — sometimes it looks at earnings for the next few years, and sometimes when the earnings have been bad due to an out-of-control event. However, it appears that corporates and the economy have recovered from that shock. Markets look to a little more to discount future earnings.

There is a hike in capex and infra allocation. To what extent can it help revive growth and earnings?

Growth would have revived even with a lower hike in capex, for we are comparing with the Covid-affected year. However, India needs to invest aggressively in infrastructure, and the deficit due to higher allocations to capital expenditure and infrastructure is qualitatively very superior to a deficit due to shortfall in revenue or increase in day-to-day expenditure.

Government borrowings are also estimated to be much higher than expected. What impact will it have on bond yields and currency? Can it hurt equities?

Outside of SIPS, equity inflows are negative. But it’s not a bad thing, people are continuously allocating little drops of money every month and that’s adding up to a lot. It’s better than having an environment like 2008 where somebody launches a fund and gets a massive inflow and getting stuck later. This is healthy from a risk point of view too. Nobody is getting overexposed all at once. There are SIP cancellations and that has gone up but net-net SIP inflows are still positive.

What is your view on the mid-and small-cap segments? Can they still outrun their large-cap peers over the next one year? Overweight and underweight sectors?

We expect that market breadth will expand. For the past 12 to 24 months, only a few large-cap, so called “quality companies” were doing well. With strong economic revival, investors will have more choices to invest and medium-cap companies should also do well.