MC Exclusive | Won’t argue over price; smallcaps, microcaps is a 10-year game: Mukul Agrawal

Mukul Agrawal of Param Capital Group

In the world of stock markets, there are investors who fancy public appearances, and those who run miles away from it. They all have their reasons. With more than three decades of experience dabbling in stocks, trader and investor Mukul Agrawal belongs to the second category.

Right out of college, he began his stock market journey as a trader in the grey market for initial public offerings. Over the years, the reclusive founder of Param Capital Group has built stakes in around 200 listed and unlisted companies. His speciality is small and micro cap companies, in which he takes concentrated bets. In his first ever media appearance, Agrawal spoke about his journey, his trading and investment styles, some of the companies he is invested in, and his take on how the market is poised right now.

Excerpts from a free-wheeling chat with Moneycontrol’s Santosh Nair:

What made you choose stock market as your vocation?

My father used to dabble in stocks on the side. I would help him fill forms while applying for IPOs. He ran a small advertising agency,  and so subscribed to all the main newspapers to check if his clients’ ads were published. He would discuss investments with me, and that’s I how I got to know about the stock market while still in school. Because I had access to many newspapers, I ended up becoming a voracious reader.

Where did you start?

I graduated in commerce in 1991. The only thing I had some idea about was stocks. So, I decided to give it a shot before trying my hand at something else. Everyday, I, along with a few friends, would travel from Malad to Dalal Street, hoping to learn something about the market. Brokers were an influential lot, and you could not get anywhere near their offices unless somebody recommended you. We would stand outside the trading ring in the (BSE building), hoping to get some scraps of information that would help make some money. There was a black board outside the ring, on which a BSE staffer would write the prices every 15 minutes.

How did you get your break?

Back then, there would be a gap of nearly 4-6 months from the time an IPO was announced till the time the stock was listed. During that period, there was a booming grey market for the soon-to-be listed stocks. The advantage for a newbie like me that trading in the grey market did not require capital. All the trades were done on trust. By then I had been around for a few months for some people to have trust in me. There was a phone booth next to Ashok hotel near the Union Bank of India building. I would be on the street during market hours, constantly working that phone, calling up grey market players in other cities and putting through trades. By 1993, I had made a few lakh rupees, a huge sum at that time.

How did that change your life as a professional?

I bought a 90 square feet office on Cawasji Patel Street for Rs 6.5 lakh. Out of this, around Rs 2.5 lakh was put up by my father, and the rest was from my stock market winnings. My brother Mayank and I operated from that office. He got into sub-broking, but I was clear right from the start that I wanted to trade for myself. By then, brokers had become a bit humbler, thanks to the (1992) securities scam, and I had a decent bank balance. So I could now sit in a broker’s office and follow the market.

Which were the trades that made you big money?

Not any particular ones that I recall, but I can say that the arrival of NSE was a turning point in my life. Trading volumes shot up exponentially, it was still a shallow market, very volatile, but thanks to screen-based trading, prices were transparent and traders like me were no longer at the mercy of the broker. That made a huge difference to my profits.

What was your trading philosophy or style in those days?

Very early on, I realised one should have a basic idea about the fundamentals of any stock that one traded in. For short-selling, I would usually target stocks with poor fundamentals and dubious managements. I avoid shorting stocks of good companies even if they appeared overpriced. Looking back, I wish I had a good mentor, who would have helped me hone my skills as a trader and investor early on in my career. Much of what I learnt was through publications, watching experts on business channels, and through friend circles.

What held you back from having a mentor?

Maybe I did not try hard enough to network. I would always follow a five-day routine, and was happy with that. Saturdays and Sundays were wholly devoted to cricket and movies with non-market friends. Even today I can say that I am poor when it comes to networking. I have more friends outside of the market than within. Through the trading hours, my phone rarely rings.

What is your recollection of the 1999-2000 dot-com boom?

Of having made a lot of money and splurging on material comforts. I bought memberships on the BSE and NSE, invested in real estate. That was a crazy market.

A lot of dubious stocks rose manifold in that rally. Did you make money shorting them?

Much of my profits came from my long trades. My short (selling) trades cost me money. Eventually when those stocks crashed, I managed to recoup my initial losses, but my strategy did not work well.

Most traders recall at least one instance when they were on the verge of being wiped out financially. What was yours?

I may sound cocky, but no, I never came close to losing it all. I have lost money, but not so much as to nearly go bankrupt. Maybe that is because I was careful about the size of my bets. Unlike many of my peers, I would not bet the house, however convinced I may have been about that stock. The flipside was that I did not make any windfall gains from a single stock.

What is your one guiding rule when trading?

Bhaav bhagwan che (price is god). The price of a stock says it all, no point arguing against it, whatever your view or conviction.

How did the transformation from trader to investor happen?

All that took place after the market crash of 2008. I had made good money when the market was rising between 2003 and 2008, but realised that trading was not the ideal way to create long-term wealth. So, I decided to devote more time to identifying good companies from a longer term view. I set up a small research team in 2011 for that.

What kind of an investor would you describe yourself as — growth, value, momentum…

I would call myself a patient investor. Since I invest in a lot of small-caps and micro-caps, it takes me a minimum of four years to build a decent sized position, and at times even more. For instance, in Kingfa Science & Technology, I first bought in 2013, then added to my position in 2014, then in 2020 and 2021. Remember, it can take years for a company to perform to its full potential.

So how do you identify the stocks to invest in?

I zero in on an industry, analyse the fundamental picture and then draw up a list of the key stocks in that sector. I then watch the screen to see how the price fares, and also check for news flow around those stocks. I don’t want to buy at the bottom. I am OK if the stock moves up 15-20 percent from the time I have identified it. I need to be comfortable about the price at which I buy the stock.

But that goes against one of the traditional market wisdoms that comfort and big profits don’t go hand in hand...

Maybe.

In other words, you don’t go looking for contrarian bets…

No, I am not a contrarian investor. But I believe that that you cannot be a good trader unless you are a good investor and likewise you can’t be a good investor unless you are a good trade.

That sounds contradictory considering the fact that the approaches are so different...

To be a good trader, you need to have a basic understanding of a company’s fundamentals. Else you will end up doing the opposite of what you should be ideally doing. Good companies can stay overvalued and bad companies can stay undervalued. Investing is about identifying the right companies to put money in. But how much to buy, when to buy, when to hold, when to average—these things are clearer when you have had experience as a trader.

Also, capital can be created only through trading, unless you happen to inherit wealth. Nearly every big name on Dalal Street started off as a trader and then went on to become an investor.

How many companies do you have in your portfolio?

Around 125 listed companies, and another 75-odd unlisted ones.

That’s a lot. How do you manage to track them. Also, seasoned investors say there don’t focus on more than 15-20 names, because it is just not possible to go beyond that.

Each one has their own style. I am quite comfortable owning 125 companies. I have a team that tracks the developments in these companies. I am fine as long as the stock price is above my cost of acquisition.

But how is that possible at all times? Companies go through downcycles as well.

I pay close attention to promoters’ intent and capability. I agree companies will have their rough patches, what matters to me is how the company is trying to deal with it. I will only add to my position if I feel they are taking the right steps.

Tell us about some of your key bets: Suzlon?

The company suffered because of a combination of change in government policies as well as its own missteps. It is a clear leader in the wind energy space where the government is looking to add another 6,000 MW of capacity. It has a steady revenue stream in its operation and maintenance business. There are challenges no doubt, but the company has managed to do a good job of reducing its debt burden. I started accumulating the stock when the company came out with its rights issue.

Radico Khaitan?

I first bought the stock when Diageo took a stake in United Spirits. As society prospers, alcohol consumption will only go up. Drinking has become acceptable even in conservative families. Even if they don’t drink, they are not averse to serving alcohol to guests at social events or even at home. Radico has managed to create some winning brands like Jaisalmer in gin and Rampur in single malt.

Ceat?

Strong brand, managed to time its capex well. Now that its capacity expansion is in place, the company is set to reap the benefits of the coming boom in the auto sector. ICE (Internal combustion engine) or EV, vehicles will need tyres.

Sula Vineyards?

Wine consumption in India is very low—less than 3 percent of the total alcohol sales—compared to the global average. I think will change in a big way in the coming years. Besides I like the passion and dynamism of the promoter (Rajeev Samant). He is a category creator. Sula has been around since 1990, it is only now that the company has gone public

Do you meet promoters of the companies you invest in?

Sometimes. I try to avoid it as far as possible because you often end up getting swayed by their pitch.

Raymond?

I bought it when the market was still not convinced about the promoter’s intent to create wealth for its shareholders. But Manyavar’s listing seems to have changed that. Two in 10 people know about the Manyavar brand, and eight in ten know about the Raymond brand. So there was no reason why Manyavar’s valuations should be at a hefty premium to Raymond’s. The management has realised that and is now has been making all the right noises. The market is taking note and rewarding the Raymond stock.

Market talk is that you are a big buyer in BSE. What is the play?

The BSE’s F&O segment is making good progress. The NSE has a near 100 percent share in F&O. That is not going to become 105 percent. But the BSE’s zero percent share can become 5 percent. And my bet is that BSE will receive tacit support from the authorities because the system needs a good strong number two exchange.

But its cash market segment is still doing poorly.

Once volumes pick up, it will be a self-fulfilling prophecy. You just need a trigger somewhere.

Do you own NSE shares?

Yes, I bought it at Rs 800 (a share). I have not added to it.

What is your take on the overall market? There are concerns that it has come overvalued. Do you share that view?

Some stocks have gone up 3x, 4x, but that does not mean the market as a whole is overvalued. The run-up in the Nifty has been sharp if you look at it from the March 2020 lows. But the index is up only 60 percent over the last four years. Also, it is not as if everything is going up. IT has been underperforming for a while, metal stocks are struggling. Money is rotating across sectors, and that is a good thing. It is not the way it was in 2007 or 2000 when only a handful of sectors were attracting all the money.

Your misses in this bull run?

Railway stocks. I was late in spotting the trend.

Do you trade even now?

Yes I do. Because few things can match the thrill of trading. But I don’t trade as much as I used to earlier. One reason for that is the market not being volatile enough over the last year. This is a market more suited for investing. Traders make money in a volatile market.

Your advice to investors who are looking to make a fortune in small and microcaps?

This is a phase of the market that makes ordinary people look like geniuses. If you want to make serious money from small and microcaps, then have an investment horizon of at least 10 years after having identified the right stocks. Given the sharp price moves, a three-year horizon is not good enough. You will be back to where you started.