Bullish no more: Why Sameer Arora decided to exit IT after 25 years

Arora’s foresight guided the asset manager as it exited all its positions in the sector. Earlier, he recalled that his investment strategy in IT and gold bore fruit during the last year.

“After being a 25-year big bull on Indian IT, we completely exited our positions in this sector in July. Although at some level they are linked, we were able to differentiate between the IT story of India and the US. This has helped our fund perform well, said Arora during an interaction with Mint for the Guru Portfolio series. In this series, leaders in the financial services industry share how they are handling their finances and investments.

asset mix

Arora’s investment portfolio comprises 40% Indian equities, 40% global (mainly US) equities, and 10% gold and debt. He does not have a separate contingency fund: all his investments are quite liquid, and can be cashed out when required. In the last one year, Arora’s portfolio has given 8-10 per cent returns in dollar terms.

Barring some of his legacy investments in the Indian markets, a major chunk of Arora’s equity investments have been through Helios’ own fund. In global markets, 100% equity exposure is through Helios’ own funds. In India, 90% is through Helios’ funds, apart from legacy shares.

The Indian fund, which is an offshore fund, at times short some stocks to hedge its position, but remains long on a net basis. Arora says the fund’s net long position has increased since last year as it has become more bullish on the Indian markets. “Our net long position would be around 70%. Last year, it was closer to 60%,” he says.

Last year, when the Russia-Ukraine conflict broke out, the India fund’s net long position was also brought down to just 40% for short periods. “It neither helped nor hurt because in rupee terms the markets went nowhere,” he said. Subsequently, this year, we have been more positive on the markets driven by two things. The US market, we thought would stabilize, and now it seems to have stabilized. At that time we thought that the hike in interest rates is over or there could be some more hike in January or February this year. But now it seems to be ending, so it may get delayed by two-three months. The US market is up 8-10% this year,” says Arora.

“And we think India should be a big beneficiary of a play by China as well as the world,” he added.

China-plus-one is an international trade strategy where large global businesses are looking to diversify their supply chain dependence on China following the outbreak of COVID-19. Pandemic-induced lockdowns disrupted supply chains around the world and caused businesses to realize that they were highly dependent on China. The consignment coming from China was stuck during the lockdown.

Separately, Arora points out that the Indian market has generally gone up 14-15% per annum in rupee terms. “So, this kind of return is not unreasonable at market levels, which is a very high return in any part of the world. But it is not unreasonable to think that just because it has happened in the last 25 years, we can expect the same thing in the future. Guessing kind of numbers.Even if you look at it independently, Indian GDP (Gross Domestic Product) is 10-12% in nominal terms as GDP grows at 6-7% and inflation is 5 %. If you look at it from equity risk premium (ERP) point of view, that is how much people are earning from debt and add 5-6% of ERP, making it 13% of expected return. So , Broadly speaking, over time, equity will beat other options but it will not do so smoothly or in a linear manner. So, what you need is the ability to hold and after so many years, we have that firm belief is,” he says.

global drama

Global funds, where the cash-level was increased to 40% last year, has now been reduced to 22%. Globally, the outlook is more confusing, says Arora, so it’s difficult to have a strong view right now.

“But what matters more is that the companies we are investing in are very solid. These are big-name, well-established companies, such as Alphabet, Amazon, and Microsoft. Many American tech companies, such as Alphabet and Meta The valuation of the companies is very low as compared to Indian IT companies.

Another company that has done well for us is Louis Vuitton, the French fashion luxury brand. “The rich will always be there to spend luxuries. Sometimes, this segment will be India rich, sometimes Chinese, sometimes Russia, sometimes bitcoin rich,” he says.

“So, these companies are interesting in and of themselves. But, we don’t always think about how America is doing, how the world is doing when we invest in these companies.”

IT strategy

As mentioned earlier, Arora changed its information-technology strategy by exiting Indian IT altogether.

Arora’s funds invest broadly in three themes – financials, IT and consumer. Hence, money moved from Indian IT to financial stocks and consumer-facing firms.

“At the Global Fund, we have a huge technical load. America’s technology story is quite different from India’s. So, that fund has 40% US info-tech. We realized that Indian IT companies are not dealing with reality, which is after last year-June-July- everyone was saying they are laying off people, slowing down; Even the consulting companies were saying so. The same sentiment was seen in software companies as well. I have also seen in the past, once or twice, that during market cycles, Indian IT companies (at least publicly) are not ready to accept the truth (about facing downfall) and hence investors Get more upset with them,” Arora adds.

US tech plays have done well after announcing job and cost cuts and restraint on blue sky investment and as a play on growth in AI (artificial intelligence) rather than sudden high growth in their existing businesses.

Indian IT is a pure growth story, so if growth factors are missing, the stock won’t do so well. “So, we placed a bet that Indian IT may not fall, but it is unlikely to outperform the market. But, so far, we have seen Indian IT underperform. IT index has underperformed Nifty 50 index by a good margin in last 12 months.

In the one-year period, the Nifty 50 index has given a return of 12%, while the Nifty IT index is down 7.6%.

buy gold

Having gold in his portfolio also helped Arora last year. “I have generally avoided gold, but I bought gold around 2020, only because interest rates were near zero. So, the 10-15% I had invested in liquid-type funds, I put in gold as I felt debt was not giving anything worthwhile anyway,” he said.

Gold prices have gained 20% since the Russia-Ukraine crisis in February 2022.

Arora, however, says that he is unlikely to increase his gold investment, but will continue with it for now.

lifestyle changes

Apart from his investment strategy doing well, Arora’s weight management strategy also seems to be paying off. He says that he has recently lost around three kilos and avoiding deserts, including his favorite gulab jamun, has helped him lose weight. He says, “I have reduced my sugar intake to almost zero.

He is now seeing the benefits of changing his eating habits. He says he feels stronger now; He claims that he can now play tennis for almost 90 minutes non-stop.