Porinju Veliyath sees a good Samvat 2074; Here are his 'Pataka' stock picks
The Kochi-based market veteran believes that the key lies in stock-picking and identifying them before turnaround starts to take place.
October 18, 2017 / 04:44 PM IST
Equity benchmarks have witnessed a good Samvat 2073, with benchmark indices — Nifty and sensex — gaining 17-19 percent.
So, what has been working for the market and how do you make money from it? Porinju Veliyath of Equity Intelligence India believes that the key lies in stock-picking.
“This is especially for those who are a little positive about the country and its economy,” he told CNBC-TV18 in an interview. In fact, we are currently staring at interesting times and this will continue in the upcoming Samvat as well. Maybe indices’ returns could be same or lesser, but investors should have a stock-specific approach.
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For the uninitiated, he implies looking at specific companies or stocks that are at an ‘inflection point’ and have a turnaround potential. It involves common sense, wisdom, knowledge and learning mentality. A humble approach to the market with this mentality will create more wealth, he added.
“Market structure changes very fast and the rate of change in the past two years has been like never before…there are a lot of economic indicators in the background. And, picking up stocks in this dynamic India is how you will make big money,” he told the channel.
Veliyath backs this with the case of Reliance Industries. He has been bullish on the stock in the past one year. The stock has doubled in a 1.5 years and this is what happens when you pick stocks at an inflection point, he added.
The ace investor also listed out his ‘Pataka’ stocks or as he likes to call it ‘stocks that are not impressive at that time, but have good potential’.
The Kochi-based veteran is placing his bet on the stock, which has a good turnaround potential. “The company does have lot of debt and assets. I see huge positive getting developed between the assets and liabilities for the company. Investors have to take a little risk,” he told the channel.
In fact, he said that clarity is emerging that this is a survivor and a multibagger stock.
Veliyath said that he held 6 percent in the company and highlighted regarding its businesses in the Gulf. “It is a great brand with a wonderful management and has the potential to grow big,” he said, adding that it is a good upper class consumption story.
In such cases, one has to identify companies a bit early, before the firm starts posting good results. That is how you pick stocks, he reiterated.
He is positive on media space as it has a long way to go. While there is no hurry to buy the stock today, he highlighted how the stock was being accumulated in his portfolio management services (PMS).
“The print media business is demerged and the parent firm has Rs 30-40,000 crore of market capitalisation. It has recently acquired radio business and all channels are profitable,” he told the channel.
Below is the verbatim transcript of the interview:
Anuj: From last Samvat to this Samvat your portfolio has gone up 45 percent. It has been good going for you and your investors. What has been the key for you over the last one year in terms of the Indian market. What is that one key highlight?
A: We had a very good year. Samvat 2073 has gone by. I think stock picking - that is what has been making money for investors and for fund managers and everybody had a nice year and everybody seems to be happy about it especially those who think positive and little optimistic about the country, its economy going forward. I think they have made much more money and its interesting times. I strongly believe the interesting times to continue in Samvat 2074. It will be very comparable, similar year for stock pickers, index can move -- the Sensex and Nifty, we had last year around 17-18 percent gains, maybe something similar or maybe little lower on Nifty and Sensex but stock picking, I think it is an amazing place to be in India. There is a lot of money to be made and a lot of stocks are there. One need not go after stocks which have already moved up and become fancy. That is what investors should take care to make more money.
Anuj: The call that stood out for me, as you said look for companies which are at inflection point and I think you even mentioned Reliance Industries in that list. We have seen a big move for that stock. What is next? Are you still holding it or are you recommending booking profit here. How would you approach this one?
A: In fact we had a very small exposure to, very few clients in PMS on Reliance Industries but I was very bullish in the last one year on Reliance, from the price of Rs 850-900, you have been mentioning it couple of times on CNBC-TV18 and even on my Twitter.
Reliance has doubled in the last one-and-a-half year time and it was expected. This happens when you pick stocks at the inflection point as I mentioned. It is not a very easy game to find the inflection game; somebody asked me - please let me know how to find inflection point. I have a readymade answer for that. A lot of expected -- it is the common sense, the wisdom, the knowledge and the learning mentality. I will tell you what the investor today want most. It's a learning mode that we do not know; we have lot more things to learn and know. That humble approach to the market and the learning mode in the mind - that creates wealth because market structure changing is so fast and in a big way. It goes on changing and in the last one or two years you might have seen, the rate of change is like never before. The market today is different from the market a week ago or the market could be after one weeks. So you have to be in learning mode, how the changes happening in the economy especially on structural basis and what is happening globally in the economies, in global trade, how Indian exports and imports are doing and there are a lot of small, simple economic indicators keeping them in the background, picking stocks in a dynamic economy like India. I think it is very-very interesting game and it is big money.
Anuj: Let's go through some of your 'Pataka' stocks of last year. They have done well - Godrej, Federal Bank, Vindhya Telelink, all of them. Tata Global Beverage has been a big money maker. We all know about these stocks and some of them have done well but let's talk about this Samvat and you have chosen some 'Pataka'. Let us start with Zee Media Corporation. What is the story here?
A: I never recommend 'Pataka' stocks. The normal stocks become 'Pataka' stocks later - that is what happened in the last one year. Future Consumer gave me the biggest money in the history of our portfolio management, from Rs 10 to Rs 65. So that is called 'Pataka' but at Rs 10 it was not a 'Pataka' stock. At Rs 65 people realised it as 'Pataka' stock. So I never ever recommend 'Pataka' stock. I recommend stocks which are not looking impressive at the time of mentioning it. Of course I may retweet (on Twitter) it later when it becomes a 'Pataka' stock. So people take cues at that time and that is also a wrong attitude.
This year I was looking at few companies - GVK Power & Infrastructure is one company I have been looking at with a huge turnaround potential which is now at Rs 1,800 crore, it's a surprise for the company and it has got a lot of debt, it has got a lot of assets. So it is a game, you have to see what the company has, it owns and what the company owes to the banks or institutions. So I think there is a huge positive getting developed between the assets and liabilities of GVK. I expect this year to be a turnaround year for the company and once it turns around this can be a multi bagger stock. So investors have to take that little risk that everything is not clear today, the kind of liabilities they have, the contingent liability in the Australian mines, the bank loan consolidated at around Rs 15,000 crore. I had attended the annual general meeting (AGM) of the company recently. So there is some clarity emerging that this is a survivor, is what I concluded. If it is a survivor, this is going to be a multi bagger. The airport asset, the Mumbai airport is a huge asset on which they can leverage and go forward. So GVK is one of my pick
Anuj: But it hasn't done anything. You don't get worried about the kind of debt that it has. It has destroyed shareholders wealth over the last many years.
A: You have to be rational and logical when you look at the debt of the company. You cannot avoid buying company without debt - that is not a real criterion. You have to see the debt and assets of the company and what the management is doing to come out of that mess. If they become successful then GVK can be 5-10 bagger going forward. It is a huge company with great capability and excellent management I would say. So without little risk you cannot get multi baggers. It is very important in this market especially in Indian market.
The second stock I would like to talk about is Kaya. It's a stock we are holding; in PMS we are holding around 6 percent of the company. It is not a 'Pataka' stock; it's not an impressive company today. Its struggling, Indian business is bleeding. In Gulf countries they have same business of Kaya, I am talking about Kaya which is the group company of Marico. I think it is a great brand, wonderful management. It's around Rs 1,200 crore marketcap today, Rs 400-500 crore of revenue. They have a potential to grow big. This kind of great ideas, sometimes you have to identify a bit early before the company start coming with numbers. Once numbers starts coming in, profits being reported, these companies will be given five-six times valuation. So when you pick some five-six stocks this way, maybe one or two can go wrong. You cannot get everything foolproof.
Anuj: What is the story in Kaya. You recommended it in the past as well. It is a stock which has not done too well from its listing. I think listing was around Rs 1,400, if I am not wrong. It is now struggling around the current price.
A: It was at Rs 400-500. It went to some Rs 2,000 plus kind of prices. I started buying recently at Rs 700. I haven't recommended this stock much though I have bought 6 percent of the company in portfolio management. So this is one stock we bought not for the immediate appreciation. This kind of businesses has future in India because this is an upper-class consumption story which is still in infancy in India but the number, the top 1 or 2 or 3 percent of Indians, they start consuming these kinds of products and services. I am telling you that is also a huge number. When we say 3 percent of one thought three hundred million people, it is very big. It is equal to the population of many European countries. So Kaya is a stock I am betting on.
Zee Media is my third pick. It's a stock we have been buying in PMS since Rs 30. We have been accumulating. Now their print media business is demerged. I think the parent company Zee Entertainment Enterprises is almost Rs 30,000-40,000 crore of marketcap.
This company recently acquired the radio business and some of the channels are doing very well and profitable. So in India media has a long way to go in this country with one thousand three hundred million people. I repeat this number again; you have to make people understand the value of numbers when you invest in the market. So Zee Media is a stock at Rs 1,800 crore value today. There is no hurry in buying this stock today. These stocks are not going to perform or to come with numbers very soon. So even if it goes up today, it will come back tomorrow or next week.
All these three stocks we are holding in portfolio management, as a disclaimer I have to mention that.
Disclaimer: Reliance Industries is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.