Stringent Norms Shielded Indian Markets From Global Financial Crisis, Says Helios' Samir Arora
Despite the banking crisis in the U.S., Arora remains confident about the Indian market and is becoming more optimistic.
Indian markets are shielded from the global financial crisis as domestic banks adhere to stringent asset quality norms, according to Helios Capital's Samir Arora.
The failure of the California-based Silicon Valley Bank, followed by the collapse of Signature Bank, has caused the banking industry worldwide to go through a rough patch. The contagion have also reached Europe, where Credit Suisse was taken over by UBS on Sunday after its shares and bonds tanked.
Even so, Arora, founder and fund manager at Helios Capital Management Pte, remains confident about the Indian market and is becoming increasingly optimistic about the country.
"These issues that are happening in the U.S. related to the banking sector, I think we are well protected from that," he told BQ Prime's Niraj Shah. "If we have these mark-to-market issues, how much is the current loss relative to equity, and that would supposedly be 6-7%, whereas many of these banks have effectively lost 100% of their equity even if bonds held to maturity are counted," he said.
The volatility in Indian markets emanating from the global banking crisis will likely settle down in a week or two, Arora said.
"I would think that, broadly speaking, if you look at our market, it has not done anything for one and a-half years," he said. "Therefore, we have not become more or less expensive, unlike the rest of the world that has become more or less expensive."
The inflows due to the 'China Plus One' strategy, the rise in manufacturing capacity, the strength of the banks, and even the improving current account deficit are playing out to India's benefit, Arora said.
Indian IT Sector Guidance To Disappoint
The Indian I.T. sector is feeling the heat of the global banking crisis on account of the substantial contribution the BFSI vertical makes towards domestic tech players' businesses, Arora said.
"Indian I.T. is the worst place because, on one end, we say 40% is BFSI, and those BFSI guys today are not going to talk about new I.T. projects ... previously you may have wanted to guide for 8-9%, and now 8% will become 4-5%. So I think the guidance in India will be very poor. Maybe somebody will say 'I can't guide'," he said.
Strong Case For A Fed Hike Pause
The current banking crisis can force the Federal Reserve's hand to pause the rate-tightening cycle, even if temporarily, he said.
"I would think that these problems with the regional banks or mid-tier banks in the U.S. overall have to be disinflationary in some sense. It is effectively like a dampening of economic activity," Arora said.
They can still use harsh language; they can still say that we are just pausing it for now to give you time. In some sense, it would be a bit funny that on one hand you are saving a bank and on the other you are raising rates in that 15- or 10-day period," he said.
However, a pause might not give the markets enough reason to cheer, Arora said.
Watch the full conversation here: