'If you want to make outsized returns, buy during uncertainty'

Global equity markets are likely to remain volatile in the near term in the wake of concerns over events such as Brexit, says Madhu Kela, Chief Investment Strategist at Reliance Capital.But the former star fund manager believes that Indian stocks will give plenty of returns to the patient, discerning investor.Speaking to CNBC-TV18 in an exclusive interview, Kela said the Indian economy was growing at 7.5 percent in a world mired in deflation. Over the long term, this would lead to tremendous creation of new businesses and wealth.Kela -- who called the bottom of the market around its 6,800 lows in February--  added that near-term returns, especially in stocks that have bounced sharply since (such as public sector banks), may be subdued."If you want to make great returns, you have to buy during uncertainty," he said.The quintessential bottom-up stock picker, Kela said investors can find opportunities in any sector -- even real estate -- but he said one overarching theme could reward investors: consumption.Below is the transcript of Madhu Kela’s interview with Anuj Singhal on CNBC-TV18.Q: We are doing this show at K. J. Somaiya Institute of Management where you did your MBA so tell us a little about your start. I believe you grew up in a very small town in a Hindi medium school your journey from there to K. J. Somaiya and to Reliance Capital?A: I would say I am a son of a very proud farmer. My father still lives in the same village. The population of the village still is 10,000; in Chhattisgarh place called Kurud near Raipur. When I came the population was 3,000-4,000. I did all my schooling in the village up till class 11th in Hindi medium, absolutely pure Hindi medium till class 11th. Did my graduation in small place near Kurud called Dhamtari and did it in B-Commerce. Obviously, when I came here, I came with only one determination that under any circumstances I cannot go back because all my uncles, everyone who was intelligent they all told me that you don’t know English and you are not graduated in English medium, you are going to do MBA course which is pure English medium how are you going to do it. Q: Till 11th you had not exposure of English at all?A: Absolutely nothing. We started learning ABCD in class 7th or 8th. So, we had little bit exposure, but it was only one of the subject.Q: What about your MBA education? What was the best part about that?A: When I came here it was only dream and may be absolute will power that I have to do it, there is no going back. So, I actually prepared for one year for an MBA entrance exam. Then I stayed in a Sydenham hostel and took admission in Sydenham College to prepare for my MBA. Appeared in the entrance exam, so it is a long story but just to cut it short in my group discussion obviously I couldn’t speak as fluent English as it was required. I requested the person that I should be allowed to speak in Hindi because you are not judging my language here. So, they allowed me, I passed through the group discussion. Then the interview came and in interview again I requested that if I do not learn speaking English as fluently then you can withhold my degree. So, I was very fortunate this institution gave me a chance that is my passport to enter Mumbai and enter stock market. Q: Was it a hindrance for you in corporate world as you picked up of course your English skills as well or do you think because you were in stock markets what really mattered was that you were able to pick good stocks? Your English is now absolutely perfect but you struggled in initial years?A: In the initial years it was a little bit; I will be very honest with you. There is a whole upbringing that you come from a small town, the way you dress, the way you talk or your overall exposure it all matters. You have to wait against your will power, so you have the will power these things are passing phases of life. I am thankful to god that I passed those phases. Q: Your father had a lot of influenced on your life, you grew up in a large family. Just tell us a bit about the kind of influence your father had and the kind of teachings that you had?A: My father actually as I said he is fourth passed. My grandfather expired when I my father was two years of age. He really grew up nicely and my elder brother was no more. He had a lot of influence on me. We are three brothers and three sisters. I lost my brother at the age of 49 years. He was the one who actually pushed me that you must do it; you can do it. So, the entire family was very supportive. They knew that that if I decide then I can do it and our resources were very small.  How much can you earn in a small village doing farming. My father said that even if I have to sell my land I will sell but you must go and get the best education possible in Mumbai. Q: Let us talk about your initial years in this industry. You joined couple of small companies before you moved to Motilal Oswal and then of course there was no looking back when you moved to Reliance?  Just tell us about your initial journey in the corporate world?A: Initial journey was a conviction in the stock market. So, when I was in the college itself I got a little bit of exposure to the market. We were in Sydenham College, there were couple of boys who used to trade the market and one or two of them were very smart also who were investing. They used to make couple of phone calls and someone used to say I made Rs 10,000, I made Rs 20,000. Q: Which used to be big money at that point?A: Big money even today. I am saying big money for a boy who is coming from a small village. I have seen my father make Rs 2,00,000 in a shop, so it was big money by any standard for me. I was very curious at that time. Aise kaise hota hai, phone lag eke paisa banta hai. So, that is what developed the curiosity in me. I was almost certain in 1990-1991 when I passes out my MBA that this is it. I never ever evaluated any other option for me. I will be honest with you.Q: Stock market was the only option?A: The only thing, the only option. In 1990 I was very clear. I thought that this is a true business of businesses later on I discovered. This is only a place you can be in touch with Tata, Birla and Ambani because otherwise no one will care about you. Thirdly, you need not had to have like Rs 10 crore or Rs 100 crore to start an industry or start a career. I started with Rs 100, but even that Rs 100 was good. With Rs 100 you could buy 100 shares. Q: Let us talk a bit about your investment philosophy. You have picked a lot of multi baggers and Divis Laboratories I think still remains your best investment. Jindal Steel and Power you identified at some Rs 200 crores and you sold at Rs 60,000 crore market cap. How do you identify these huge multi baggers and how do you stay invested in these companies?A: To be honest with you, before you ask me what is my regret, my actual regret is the number of companies which we identified had we stayed invested in those companies and had we had the wisdom, looking back and I am being very candid and honest, we actually identified so many of these companies way ahead. We bought Siemens when the market capital of Siemens was less than Rs 500 crore and we bought sizeable quantity. In early years what happened the moment the stock went up two times, three times, four times there was a temptation. We were also able to find new ideas. Only later on we realised that the new incremental ideas we are finding are inferior to the ones which are selling. To answer your question I would say lot of it actually in the early years came out of passion. I was so involved in my job, I am still in and so we will go and meet lot of these smaller companies one time, two times, three times try and understand as to what is it which you are wanting to do. With precaution I must say that whatever I am speaking you please take care it is not a recommendation to buy or sell any shares. Like we went and invested in Divis Lab I could find when I met Murali Divi for the first time he was phenomenal person, full of energy and passion for his business. I didn’t understand that time pharmaceutical and this will happen. However, I knew that he is the right jockey. He will make sure the horse will run. That was a call at that time because at Rs 150 crore there was nothing much to lose. Later on with the help of lot of my colleague who understood pharmacy and pharmaceutical we developed deep understanding. We went to many fairs and we kept on doing research. We continue to do research. Initial years, it was identifying the entrepreneur and identifying the right business wherein there is good return on equity (ROE) and good cash flow. Q: I also heard that there was some interesting things about you I have heard that? Someone told you about a rice company and you was so excited that you at the midnight you ended up at the godown of the company to see their business? Is that story right?A: I will tell you a better one. We went to this Vardhman Spinning and Mahavir Spinning. I heard about the promoter, a fantastic guy. It was very liquid stock. At that time I was working with Motilal Oswal so I told Ramdeo Agarwal that we can’t source this stock. So, I literally took a train, in those days there were no flight to go to Ludhiana. I went and sat in the office of Mahavir Spinning and I told them I am not leaving till the time you are give me the block. That was the really passion to do work and you can only do it because you thoroughly enjoy it. Q: One more story and you tell me if this is right or not that when you were invested heavily in pharma stocks and you knew that USFDA officials were visiting you would book the rooms in same hotel just to try and get any sense of what was happening and just try to get a sense of how the USFDA works, that is right?A: That is right; because those were the early days we didn’t know anything about that regulation. We didn’t know about how this whole industry works. How important is the approval process? The only way to know was you go meet some of them whatever they say was the knowledge for me. It didn’t matter what they are saying. In the early years whatever we picked up, at least we got to be very aware about USFDA inspection and this that and we understood the risk of investing in a pharma company way back in 2005-2006.Q: I believe you are influenced a lot by Sadhguru, any key teachings that you have been truly influenced by?A: That is the most recent thing. I I am very happy that I got in touch with Sadhguru. The age and the stage of life I am, I think I needed little bit of his spiritual portion to get added to my life. It has changed and I am sure it will change me a lot in due course of time. Learning, early days, it has been just one year but I am practicing a lot of what has been taught to me. I did this course of inner engineering by Isha Foundation and Sadhguru himself conducted it.If one thing I have to advice you, it is not going to be a company, it is this course. You must experience this because this is not about teaching and knowing, this is about experiencing and you will experience yourself at such level. I am very happy that I did it and I am in very close touch with the foundation. In fact two weeks back, I went back to the ashram; it was an extremely soothing experience. I hope he continues to shower his blessings and I can progress in this path.Samir Somiaya - Somaiya VidyaviharWe are very proud of our Madhu Kela. He is a wonderful example of hard work, passion, perseverance and integrity. If one were to summarise what we want a Somiaya graduate to be it would be a combination of those factors and it would be Madhu Kela.Q: Rakesh Jhunjhunwala has had a great influence on you.

A: Yes, absolutely.

Q: Tell us a bit about the influence that he had on you, it was late 90s that you met him?

A: I met him in 1998. He actually changed the way I thought about the markets when I met him for first time.