Stocks that are down 30-40% will rebound faster than those that fell 60-70%: Samir Arora

Everybody knows there is going to be pain, there is going to be a problem, there is going to be a slowdown, there would be NPA issues, some of the sectors would virtually go belly up, some of them will be on the verge of bankruptcy. But what are you doing in this market? How can one really cope up and convert this crisis into an opportunity.
It is not necessary that when there is a problem, there will be a solution straight away. I do not think we should look at every crisis as an opportunity on Day One of the crisis or Week One of the crisis. Most of us, as fund managers and as individuals, have sufficiently large amounts invested in the stock market. So, nobody should cut off SIPs, and we can show you many reasons and examples, how if you were invested in 2007 December, if you had invested before World War II in Japan, if you had invested in 1929 in October in the US, you would have done well.

But I also do not like the other side of the equation; which is that today there is a problem, today right now I want to take advantage of it. Because there are scenarios which are theoretically quite bad. It is not that they can’t be ruled out. You will not be able to take very big advantage of it, because you will never have the confidence to put huge amounts in today to say that this crisis is going to change my life because I suddenly sold everything and put it into the market today. Do not look at it as all or none. Because when you want to turn a crisis into a massive opportunity, not just making 10 per cent on one trade, that confidence neither want to have neither we want to believe that we have it. It is a slow process.

The reality is that if the economy is slowing down, it will take six-to-nine months to recover. Some parts will be affected, and before that India must execute its policies well. It is not enough to have a policy, it is important to have it executed well. In between we should not have 30% of daily wage people not having any money or policeman hitting people on the road when they are going to stock market, offices or grocery shops or whatever. All these things also have to be done.

What should investors do, panic and assume that India is going to collapse, because stock prices on an average are down 35-40%? Or is it time to say look the damage has already happened and now I need to bear the pain?
That is what I was saying: nobody needs to walk out or stop his SIPs, because we have enough evidence that when the market is down beyond a point, maybe some stocks do not come back, maybe some fund managers do not come back, but the market will always come back and we have evidence from over last 100 years in some 14-16 countries. So all that is clear.

All I am saying is when you say turn the crisis into an opportunity, I do not think it is going to become an opportunity, because the bottom line is, every time we lose four years of gains or five years of gains, and next day we say now it is a great opportunity, it is not. It is to hang in the game. The game is that over time equity does well. You should not back off today. You may back off from your existing fund or your existing stock and move somewhere else if you are angry, but not so much that you are walking out of the market. Because, it will come back.

But it is also not the situation right now to say that suddenly I will make this crisis into the biggest opportunity I have had, because I waited for four years for it, because very few would have waited for today. We are all mostly half in or 60% in, and you can add a little and keep the faith in that. Because that faith is unsalable.

The point is nearly every year India has underperformed global markets, and it is doing that even today. We will most probably do it for the next few months also. So keep the faith is all I think one needs to do. Maybe add a little, depending on what you do and what you have done so far. If you are not invested at all in equities, you really want to start today, maybe you can have 20%. But for people who are already in, just keeping with whatever your plans were and maybe a little bit more here or there should be good enough.

ET Now: What is it that you have done in the last 10 days? You said it is all or none. But have you gone back to the drawing board, said okay what is it that we need to chuck out, leveraged positions that you do not need in the portfolio any more? I am sure there are some re-thinking at least in last 10-15 days that you must have done.
Correct. That we have done. I totally agree. There are many things we have done. All I am saying is, I do not subscribe to the theory to basically say this is a best opportunity as if it was gift that somebody has given us. It is a negative, and we have to deal with it.

So, what we have done is, we have cut some of our shorts going into the roll, because we feel those stocks by chance or whatever have fallen -- like 50% in this settlement -- and we just do not feel like rolling them forward. So we covered some of them yesterday. We also covered one of our Bank Nifty short position, and we bought two financial stocks. But very-very little. One was actually completely new, and one was our existing position. We bought totally some 3% in them. So we would have added maybe 15% that way to our net position, because we covered the shorts.
But covering shorts is the same as somebody else buying the long, although a little different because the main advantage of this long-short business is that the short is like an overlay. It is not that you are selling your preferred stocks and then buying them back, because that is so complicated to do. But it is more like an overlay which you just take off or put on separately. It does not change your thinking on which stock you have.

On the margin, I totally agree with you that in the first round, it will be quality or stocks that have actually fallen the least -- and here fallen the least would mean 30%. So, there is no need to buy stocks that are down 70-80%, but there is absolutely no need on the other hand to buy stocks that have not fallen at all, to say that these are big beneficiaries.

So stocks which are down 30-40-50 per cent and which otherwise you believe are okay would be better buys than the stocks that are down 70-80%. Those will be the first-round rebounders. Some of them will but I am talking in a more general sense.

That would leave you with those same 10-odd names which did well in the last year-and-a-half; they have fallen the least: the same HDFC Bank, ICICI Bank, Bajaj Finance. Is that what you are saying, or is there going to be a rejig when the market recovers? Is it going to be necessities which are going to bounce back faster, because I am guessing that is where the first earnings recovery will come in.
No. That looks like a ridiculous argument. Because somebody has hoarded three weeks of sugar or three weeks of rice, should I buy a consumer staple company? If he has bought it three weeks ahead, he is not going to buy for three more weeks. So what is the point of wasting a crisis that way by buying a stock which is down 10%. If your favourite stocks, like these banks, are down 30-35-40%, why should you discover new names. I have not understood your point.

We are not here trying to prove a point to either our investors or ourselves that we find original new names that you have not heard of. Which is what many PMSes do. That they will buy stocks which you do not know, but only they know about. These are the 10 stocks that I know like the back of my hand, give me money and lock it up for three years.

The general thing is that these stocks we know are guaranteed survivors. Right now, the first sound is for the guaranteed survivors. Second is to see if these guys do things which are useful, but they should not have fallen because then there is no point.

So look at stocks which are down 30-40-50% but are otherwise your favourites and most probably nothing will change with this crisis in their relative position in the market. What more do you need?

Since they were our favorites, we already had them before, since they have fallen a little less than others or in line with the market, our weightage in them has not come down. So, my today’s new action in buying 1% more here and 1% more there is just for me to stay busy. It is not changing my life and it is not an opportunity in a lifetime. Because when they recover, they would recover what I lost in one month. So I am not going to celebrate this as opportunity. It is just that I am hoping that these stocks will recover first. Maybe on their way up, we will add 100 bps more to them.

I am saying please change the idea from saying this crisis is a big opportunity. This crisis is also a way to feel that without this crisis also we were not doing so well. This crisis may have allowed some of us to use that argument. Vodafone alone could have brought this market down 10 per cent. Everything there is an external crisis.

How do you see this playing out six months or more down the line, given that we are seeing massive stimulus around the world, still waiting for it in India and there may be a definite change in world order when we get out of this, perhaps increased localization. What does all of that mean for us going forward?
That in theory should benefit India. But I find myself confused. What happened to the India call centres, all that where India is the back office of the world. Have they exempted those services or essential services. If not, then we are dreaming that some of the companies which outsource to China will try and have a backup or small backup to make their supply chains more resilient. They may bring some business to India, but if our call centres and catering as a back office to the world is stopped for next 20 days, then you will have those businesses finding for resilience moving to the Philippines or somewhere else. Nobody seems to have spoken about it.

My thing is, first of all we should get out of this 21 days with dignity, where the public is not harassed by the police, supplies are there and medicines are there. India should present itself as a country which could handle this bigger crisis with dignity, and then you get the confidence of the multinationals at least for domestic local supplies, where anyway there is a duty protection under Make in India.

Maybe initially for domestic consumption, and as those companies become comfortable in handling India, they will naturally use it also for exports.