In an interview with CNBC-TV18, Porinju Veliyath, MD & Portfolio Manager of Equity Intelligence India, said the government's demonetisation move in November was a long-term positive and would help the formal sector compete with the informal sector.
This has huge investment implications: the reason why the value investor had stuck his neck out and said the market would reverse any correction that took place as a result of demonetisation.
In the interview, Veliyath said that Nifty could touch new highs in the fourth quarter and talked about areas where he thinks multibaggers (stocks that more than double in value over a given period of time) could emerge.
Below is the verbatim transcript of Porinju Veliyath's interview to Sonia Shenoy & Anuj Singhal.
Anuj: Your call post demonetisation was that two or three months down the line the feeling that investors would have is I missed it. Do you think that's played out as per dot or you think this missed out feeling is only going to increase from here?
A: I took demonetisation very positively for the stock market because ultimately the market reflects the economy. The government's efforts to reduce corruption and black money are very positive.
I was surprised to see that many people were taking it negatively and people were selling stocks.
Therefore, I think markets, though late, have started behaving rationally. We have a long way to go as far as equities are concerned. If you remember, I was talking about Nifty reaching a new high in Q4. It is very likely though it is not very important for Nifty.
Sonia: Let's explore your theme one-by-one and one of the themes that you have talked about is the holding company structure theme. Tell us what kind of stocks are you interested in and what kind of medium-term potential you see because of this theme?
A: I feel in the year 2017, some holding companies will go up by 100 percent because of the deep discounts they are trading at. Some of them are from good corporate houses and in many cases the companies which they are holding, those companies are also on a high growth path and they are doing well.
I have talked about Bombay Burmah Trading Corporation (BBTC), Bengal and Assam Company, Vindhya Telelink, Kalyani Investment Company etc. So investors can look at these companies and sometime when market goes into panic and such companies are trading at 70-80 percent or 90 percent discount to the net asset value (NAV), it will be a good opportunity. Those discounts are going to shrink and reward investors in this year.
Anuj: What is the other theme that you will be betting for from here on apart from the holding company theme?
A: India is changing positively as far as knowledgeable and good citizens are concerned.
So in spite of not-so-cheap valuation -- the price-to-earnings multiple for Indian stocks today in general [is high] -- economic progress is something we have to bet on, which of course is related to political decisions in this country.
Some people may not like some decisions; other decisions may have results over the long term, so people need patience. Investing is all about patience, you buy the right stock looking at the future of these companies and wait and have patience. India has been always rewarding.
It has been rewarding for smart investors in the last two-three decades. I think there is tremendous opportunity for making multi-baggers in this country. So there are so many themes in this country and that's the most interesting part of this.
I was looking at retail business and I started picking up Future Consumer and it has been a stock we recommended and suggested many times. I feel the complete Future Group as a retail theme starting with Future Consumer and Future Retail and there is Future Enterprises, a smaller company recently de-merged. There is also Future Lifestyle Fashions (FLFL). All these companies are looking very good to me, they will do very well in 2017.
They are strong, large companies with a potential to improve the balance sheet significantly in this year and the business also is doing very well. Many other related decisions of the government are going to favour such organised businesses in this country.
Anuj: The other theme that you were talking about was on the smaller IT companies. Any particular favourites here?
A: Most of them have in fact gone up well. I do not want people to see such companies now. The data may see so. Even RS Software (India). These stocks have moved up. Investors can look at some companies which are seemingly affected by demonetisation.
For example, I was talking about cement and some construction-related companies after demonetisation. Those stocks were beaten down because of irrational investors selling off in the name of demonetisation. So, that is another positive opportunity.
The company perceived to be affected by demonetisation -- if they are beaten down by 30-40 percent and the businesses are strong businesses going forward, they are the multi-baggers again. So, I will not be mentioning any names in that sector, but there are a lot of companies, which investors are affected by demonetisation.
Look at the price. Demonetisation is very positive for the organised sector. I always say listed companies in India, they are organised. They have been affected by the unorganised sector, especially the black sector of the economy. There are companies manufacturing products but not paying sales tax or excise duty. So, the organised companies had to compete with them.
Now there is a level playing field coming up in this country for the first time. The bad people and the good people. Everybody will have the same level, same opportunity to do business, to live comfortably.
Sonia: You had spoken about some of these cement makers earlier as well, the likes of Orient Cement, etc. and in fact, we have seen some good numbers come out from the likes of India Cement, some of the larger ones as well. Is this a theme that one can still play and some of these smaller companies like Orient Cement still looking good you think?
A: India Cement has also moved up very well so has Orient Cement. The reason why I talked about them was because they were beaten down like there is no tomorrow [during demonetisation]. That is what I was not agreeing with, but today, use this as an opportunity because 90 percent of the market participants exhibit irrational behaviour.
So, there will be opportunities -- some global event, be it positive or negative people don't look at... if people talk about Trump coming in, they sell their stock. People feel the US is going to hike interest rates, they sell. They just want an event to sell Indian stocks. That is utter foolishness. But the opportunities are again going to be there, just keep your eyes and ears open.