Hedge fund names 3 'big picture' investment themes to ride out the volatility from India's Covid resurgence

• Helios Capital Management founder and fund manager, Samir Arora, told CNBC that the India-focused fund's three big picture investment themes are private sector financials, consumer stocks that are underpenetrated as well as IT.
• Arora said the second wave of rising Covid-19 cases in India is unlikely to have a major impact on the market.
• He added that the fund is not bullish on India's growing electric vehicles sector.

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• .NSEI

India's Covid-19 cases are rising again but the market impact is expected to be limited as investors have some visibility over the longer term, Helios Capital's Samir Arora told CNBC on Monday.

Arora, who is founder and fund manager at the Singapore-based hedge fund, said that investor confidence is coming from the fact that reinfection among those who are getting vaccinated against the disease is very low.

"I think this will not have a serious market impact, only because the end, otherwise, is quite visible," he said on CNBC's "Street Signs Asia."

"Although we are seeing second wave, third wave cases around the world, nobody is really reporting that the people who have got fully vaccinated are having a large number of cases, or that those cases end up in hospitals," Arora added.

India reported a record number of new cases over a 24-hour period on Monday, surpassing levels seen in September when the first wave of infection reached its peak. There were 103,558 new cases, more than half of them in the state of Maharashtra, pushing the country's total number of reported infections to more than 12.5 million.

Indian shares tumbled Monday afternoon as both the Nifty 50 and the Sensex closed down more than 1.5% each.

Big picture themes

Arora, whose fund invests in India, explained that there are three big picture investment themes that have worked well in the country over the years regardless of short-term market conditions.

"These big picture themes are the main backbone of the fund and then you may have smaller companies or, sometimes, outside these themes, to play what is currently happening," he said. Still, the big picture themes "have been there for a long time," Arora added.

1. Financials

Private sector banks in India have over time taken market share from their state-owned counterparts, serving a market where a large number of people are underbanked and underfinanced, Arora explained. Though once in a while some state-owned companies may do well, broadly, betting on the private banks and financial names have been "an easy game," he said, adding he likes stocks like ICICI Bank and HDFC Bank.

2. Consumers

India has an attractive demographic profile that includes 1.3 billion people and a growing middle class of around 300 million to 400 million people. Arora said products and services that are underpenetrated, even among the middle class, are an attractive avenue.

3. Information Technology

Indian technology outsourcing firms that work with big tech companies have long histories and have generally done well over the years. Buying into them allows investors to "vicariously participate in the U.S. tech sector," he said.

Bearish on EV

The electric vehicle market in India is at a nascent stage with plenty of potential. Analysts and investors have highlighted specific automakers as well as ancillary service providers that potentially stand to benefit from a shift from internal combustion engines to battery-operated vehicles.

For his part, Arora said electric vehicles are going to be "value destructive" for most automakers. He explained that they would face competition from tech names like Apple, Baidu, Xiaomi and others — many of those companies have already announced plans to enter the electric vehicle market.

Those companies are "laterally trying to enter this industry only because this industry now seems to give new people a chance, who may not have been good at automobile engineering or assembly or manufacturing, but have some other angle related to electric vehicles," he said.

As a result, more companies will be competing in the auto market for the same number of users, many of whom may also prefer to use ride-sharing services instead of owning their own vehicles, Arora added.

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