Should the market focus on tariff war and not India-Pakistan conflict? Samir Arora explains
Samir Arora
, Founder,
Helios Capital
, advises against panicking in response to current events, suggesting that such reactions are often unreasonable. He highlights India's stance on de-escalation and caution against overreacting to temporary setbacks in sectors like travel and tourism. The speaker emphasizes a long-term investment perspective, advocating for rational decision-making rather than impulsive actions based on short-term concerns.
Markets have been surprisingly resilient. Can I say that?
Samir Arora:
Today's fall was not a surprise because yesterday also it had fallen. So, it is yes, okay, in line. You can say.
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When these things have happened in the past, they have had a greater short-term impact on the market mood and market sentiment. This time if I just map a three-day window, and the markets have not been nervous. There has been no big selloff, spike in volatility, and even FIIs have been putting their shoulder to the wheel by buying into stocks.
Samir Arora:
So, that is true. There is this quote that when you hear the first sound of bugle, you are supposed to buy stocks but that is not the main point. The main point here is how the market has looked after what Pakistan did in Pahalgam – the tourist massacres – and then India's response. While escalating, responding, or whatever, every time India has simultaneously said that we have finished it and we do not want to do more. The surprise has been that Pakistan has done it a second time and maybe a third time. But at least the way it is happening via drones and the fact that they are being intercepted and there does not seem to be a big loss of life or any big infrastructure being destroyed, makes it look that it might end soon because nobody is using the super serious weapons and are obviously not mobilising army or air force in that sense.
The expectation and which happens most of the time is that it finishes in a few days and then the market rebounds quite sharply. Therefore, there is no need to panic now unless somebody really knows something very specifically, then what can we say, but broadly the 70-80%, or even maybe 90% probability would be that these things die down a little bit and maybe completely in a few days. So, you are selling, trading in a two-day window which you think you will catch the rebound and mostly you will not.
The real thing to focus on is actually the
tariff war
, not what is happening on the geopolitical front. I mean, that is something which the market should focus on rather than what is happening between India and Pakistan.
Samir Arora:
So the backdrop is the tariff war which is helping India in two ways. One, it is helping India in a relative manner. India is better aligned with the US on what is expected and closes some of the gap with China and even if the gap was the same, the world would like to now have – just like after COVID – a China plus one strategy because at that time, it looked like if COVID is there in one city and you happen to be only there, then you are stuck while the world moves on or the country. The second time is about geopolitics. What if Trump again gets angry with China? I think even after negotiations, China will have a 40-50% duty. So, that is one advantage to India.
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Second, the world has nearly agreed now that the overweight position that they have in the US equity market is a bit too much. Now, you could have said this last year and the year before also, but over the last 15-18 years,
post Global Financial Crisis
, the weightage of or amount of money invested in the US is totally disproportionate to anything else. Nowadays, it is nearly 70%. The longer-term history used to be about 55% while the GDP share is 25% but it does not matter. The US companies are bigger, they get full free float and all that.
But to have 70% was like reaching the upper limit and you needed a trigger and you can see it in the articles that come on how much foreign investors have invested extra in the US over this period. I heard one hedge fund manager saying $20 trillion. Big picture you can also calculate by saying that they are about 10%, 12%, 15% overweight. So, if a little bit of that money flows out of the US – let us say just 5% – so the 70% becomes 65% over two-three years, then the 30% audience gets 5% more. That is enough for them and they are set in life. We are one of the smaller guys there in that 30% and so if the flows turn, then we are in a sweet spot. Not today, but after this is over in a few days and they had already turned that way before this, both mutual funds and FIIs wanting to buy will be a new thing for us. In the last two-three years, it has been one guy selling, one guy buying.
When you speak to your LPs, do you get a sense that the flows which have come back into India, especially the foreign flows which you have been talking about?
Samir Arora:
Yes, 100%, they have come in, because we got one new account in October, that account – just by money and not by NAV as much – has gone up around 50%. Every month they add and they are saying now we are going to give you from this account, that account let us see, but broadly and even in our long-short fund, which is not so much having this endowment and all that money, they have not put much, but nothing has been redeemed in the last two-three months, not even $1.
But in the long only, they have put in a lot of money for us. Also there is a lot of interest and a lot of discussions driven by the fact that India had broadly done well and then it had this correction. Nearly everybody agrees in the institutional world that they are overexposed to the US. Goldman puts out a report on where the flows are going and even there, we can see that the selling in the US is very high. In fact, just today there is an article in Bloomberg saying that Asian families are reducing their exposure to the US.
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They are not saying where it is going, but the US exposure is coming down and that means it is being reallocated to rest of the world and in India, you can see the last 20-25 days, including yesterday, totally more than $5 billion have come in which is pretty good these days to have that about in a short period of time.
Given the fact that the FIIs have been on the buying streak, hopefully all these tensions go away and that is a developing situation that we have been watching, the tariff goes in favour. If all these things pan out and work well for the Indian markets, then it is a clear indication that one should take the opportunity of today's volatility in a couple of weeks ahead and go ahead and buy? Help us understand.
Samir Arora:
First, I still do not expect massive returns because valuations are not down. The results are not great, but you will have good performance. I am not thinking just because of this technical issue of both wanting to buy you can make 30% in a year which you make in good years sometimes, but at least let us go up, go 10-15% up.
In terms of buying today or Monday, that depends on what you have done. So, if somebody has some funds, say 3% cash, he does not have to buy because psychologically it is okay to have 3%, and it would not change his life either way. But if you have a lot more cash or in our case because we have a long-short fund where we keep changing the net, we will definitely look to cover some of it, maybe today, yes, but that is not necessary.
The first thing you have to do is not to panic because this panic would be unreasonable because whatever scenario you are drawing to panic now, you think it will be much, much worse. If you think it will be much, much worse, then please tell us why you think that. But from any angle of rationality and logic, prior to this, the way the world comes in and tries to calm things down and the fact that India in every escalation simultaneously says we are not doing it if you stop it, for whatever reasonableness, you will think it will be over.
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All I am saying is do not panic. Forget about buying, you want to wait for a day, it is not going to make such a big deal. For example, this month, travel will be down, tourism will be down, maybe hotel booking will be down. But for that, you do not write off stocks which are supposed to be there for 20 years, 10 years, actually forever, for being disproportionate for 15 days of cancellations or things like that. We will be on the other side and others will be on the other side of such foolish responses if that is what somebody wants to do.
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