‘Highly leveraged groups are bringing down the rest of the market’

The Fed rate pause appears to be increasing global uncertainties. Bloomberg TV India caught up with Samir Arora, fund manager at Helios Capital, to get a perspective of what the Fed move means for global markets.

The Fed’s commentary indicates that the rate hike could be in December. What do you think?

When it becomes clear that they are hiking about a quarter per cent that might be a bottom for the market in some sense globally because it ends the whole uncertainty of when they will hike. The US markets went up on that. Maybe we have less to worry about if this is out of the way.

But of course after it is done people will say — when is the next hike? But for the moment I would say if they pause for a considerable period of time, which may mean six months, we will move beyond that.

What’s your outlook when it comes to India right now, because there are a lot of factors that we have been tracking — Bihar elections, the way earnings are panning out and, obviously, the big global worry that we were just highlighting. There is always a shadow when we talk about the emerging markets. In that context, how do you see India?

I think India is only relatively better off but in an absolute sense I don’t think the index is going anywhere. The problem is, in some sense you can call them old economy — the 20-30 stocks which are so heavily leveraged where nothing has happened for them. But you can see everyday how these highly leveraged groups are bringing down the rest of the market. And many stocks are connected to them, as we saw on Wednesday for Axis Bank. That was pathetic beyond limits — how something can be done like this…how an asset which is standard one day… you effectively sell off a ₹1,800-crore asset for ₹100 crore.

So if we know that these kinds of problems are there in the big picture — that some banks have not recorded them or marked them down or somebody has lent to them — this problem is quite big. And I have always been thinking that this is a better market for a long-shot manager because there clear pockets of weakness.

You may say that there are more clear pockets of strengths. But life is about relatives. So they are relatively better performers versus relatively poor. Right now I don’t think there is anybody clearly going with it.

Going by the banking sector’s exposure to the mining and metal space, is there cause for concern? Do you see the problem somewhat blowing up in the near future?

Because we are short, if a stock falls 10 per cent, we call it a blow-up.

I don’t think they will blow up, because some of them are parts of larger groups. Hopefully, those groups are not going to be like the groups which have effectively gone under in the last one-two years. But it is beyond that.

If we look at the telecom sector, look at rural India sector, look at rural economy-exposed sector, metals and commodities sector, look at state-owned banks sector, I don’t think there is any hope in the short term.

The bigger picture is that the state-owned banks and some private sector banks have not really dealt with it with dignity. That is more irritating.

While some companies are taking steps to deleverage, do you see a definitive turn in that cycle in the coming quarters?

No, I don’t see a turn in that part of the market.

For some of them, the debt is so high and the interest burden so high, that when they sell off an asset all it means is that they can pay off interest for three more months.

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