Samir Arora on why Campus Shoes is a winner and does not need a underdog tag

"My theory is that by 2025, relatively smaller positions of 2-3% per name rather than 5%-6% and nearly every year some 8-10 of them do well enough to change the portfolio and beat the market by a few percent. That is all that is needed," says Samir Arora, Founder & Fund Manager, Helios Capital

Which are the underdogs you are betting on right now in the stock market? We have seen the PSU banks beat HDFC Bank recently. Which are your underdogs in your portfolio?
By underdogs you mean stocks that have not done well recently or not? The thing is we consider many stocks as underdogs only because we buy many stocks relatively early in their life or as we call it early recognition of change which could either be a new listing or an old company doing badly, but we still do not call them underdog in the sense that underdog would mean that nobody knows about them.

For example, this month Campus Shoes is down 26%. It will be a big winner over the next two-three years because there is a new category. Now for one month you can call them underdogs but since listing, they have done very well and better than every other dog that you may have. So, I do not think of it like that. My theory is that by 2025, relatively smaller positions of 2-3% per name rather than 5%-6% and nearly every year some 8-10 of them do well enough to change the portfolio and beat the market by a few percent. That is all that is needed.

Also by being strict about selecting these and not accepting any at least ex-ante issues, you also reduce the number of stocks that may fall on the other side of the index which is that they are doing very badly. But beyond that, we have these 20 stocks we do not know which ones will do well but some of them will do well because that is how the markets are.

All the time, every day, every month, some 30% of the stocks are massively beating the market. It is just the way an average is calculated that some 30% of the stocks are much better than the index and some 30% are much worse than the index. One can see that this year also the market is zero but these banks may be up 30% or you might have 10 stocks down 30% or you might have ITC up 50%. The index has two sides and if you remove the bad, automatically your portfolio will shift to this side and you will get a few more successes than what the stats would show, which is 30% have to do well.

So you are saying that Campus is going to be a major winner despite the recent decline but the likes of Vedant, Campus etc. all fall under the consumption basket. Are you not at all worried about inflationary pressures being a long-term drag?
Long term I do not know, but right now, consumer is not very strong. I agree with you but in consumer, first of all, all these guys have reached a very small percent of the market in terms of the consumers. If you look at the country as a whole, consumption has not been strong. In general, people have not been able to pass through their hikes and we are still having this K-shaped kind of recovery where hotels are full and weddings are high profile and lakhs are being spent, but on the other hand, people are not willing to pay Rs 10 more for something or Rs 20 more for a shoe.

The point is it is the K-type thing but because most of these guys are relatively new, the bet is not about three-six months here or there. But broadly, I agree that the consumer has not been as strong as we would have thought across nearly every company and only this year, financials have driven the earnings. Earnings growth is supposed to be 8%-10%. Now ex-ante, we do not like it. In the end, that might be a great number and these consumer guys continue to be weak but we don’t have to play that immediately because at least the companies that we own are not targeted at the entire population of 1.3 billion but rather at the creamy 200 million on the top. Hopefully, these companies will have better ability to handle the situation even if inflation is high.

But right now, consumer sentiment has not been strong not just in these two companies but really in every company that we have seen.

We hear that you are buying into Piramal Enterprises. Is that true? Why are you buying a beaten down NBFC?
We have owned it for two years. We bought it in December ‘20 and last year was very good and this year has been very bad. But we like it because a) we have been hit a lot but we generally thought that Ajay Piramal’s history shows that in the previous rout, the overall numbers over the last 30 years would have been something like 28-30% per annum. These were very good numbers and in pharma they were good. In real estate, we did not buy it initially in the 2016 to 2019-20 period, but after all the hits were taken after the rights issue and after the sale of pharma to Carlyle and after buying DHFL at sort of a good price, we bought it. This year we are disappointed but we are holding it.