There is a huge opportunity for stock pickers and smart entrepreneurs for the next two years but at the same time investors should remain conservative and be choosy.
The Nifty which rose by about 18 percent in the financial year 2017 could well deliver another 15-20 percent return in FY18 while smart stock pickers can make anywhere between 50-100 percent return in the same period, Porinju Veliyath, MD & Portfolio Manager, Equity Intelligence India said in an interview with CNBC TV-18.
One major factor which is favouring Indian markets is the political climate which is slowly changing. Political leaders are taking hard decisions which will go a long way for the markets and domestic fund flows will surprise everyone.
“India is going through very exciting times. We are entering a new era of economic development. The way politicians are managing the economy, the way the corporate world is taking shape and the way disruptive growth is happening is all unprecedented. We have never seen such a situation before,” said Veliyath.
In the last 12 months, Nifty did well but the smallcap stock pickers made 100 percent return in the last one year. Going into FY2018, Porinju feels Nifty could well give 15-20 per cent growth in the Nifty and smart stock pickers can make 50-100 percent in the same period.
There is a huge opportunity for stock pickers and smart entrepreneurs for the next two years but at the same time investors should remain conservative and be choosy. Not all smallcap stocks are buys and not to forget WhatsApp is the biggest villain.
Investors usually look at stocks which are trading at a record high but Porinju has a different approach. He looks at stocks which are trading at 1-year low or multi-year lows.
“Many of the small and midcap stocks are going to grow very big in the next 2 years. People always fancy names, but it is time to look beyond because we have more and enough choice with respect to picking stocks,” he said.
We have collated a list of stocks in which Porinju is positive on from his interview with CNBC-Tv18:
Porinju recently added Selan into his portfolio which in fact eroded wealth for investors. Selan was trading at 10-year lows, he said. With oil prices trading at these levels, Selan is a beautiful company with cash on the balance sheet.
HSIL is a very large company, but it is not in fancy. It is not a great performer but carries huge relevance going forward, explains Porinju.
The government is expected to go big guns in housing. The government is developing many schemes such as housing for all, Mission 2022. “Our economy structurally is so strong that we can do these things and luckily for us, Indian politicians are taking hard decisions,” said Porinju.
It will be difficult to quantify how much more RIL can grow from here, but it could well keep giving returns to investors for half a century, said Porinju.
(Disclosure: Network 18, which publishes moneycontrol.com, is a part of the Reliance Group.)
Kotak Bank has the potential to grow up to $100 billion market cap in the next 10 years in the backdrop of the given economic environment. “We have to understand that the structure of the Indian economy and demography structure are pointing towards smart entrepreneurs and relevant business,” said Porinju.
“There is a huge potential for such businesses to grow compounded at 15-25 per cent annually for the next 10-20 years. That is kind of inflection points of our economy we are sitting on,” he explains.
Below is the verbatim transcript of the interview.
Latha: What is the mood in the market looking like? Sudarshan Sukhani was just telling us that 10,000 is round the corner. What is your sense?
A: The market mood is very evident; whatever you feel and whatever people talk today is considered to be the market mood. As you know I don’t go with the market mood. The best of course I have made is the time when everybody has been bearish and things were looking not so bright. But, as you said I am not really a midcap specialist or a smallcap specialist. Of course in the search of values when we look for deep values naturally people like me end up with smaller cap companies in India. It is because of the structure of the Indian economy and where we are heading to. I feel it is very sad, a lot of people, active investors, trading community they have been missing always the big picture on India. This is what I have been always talking about.
In the last maybe four year time I had never been bearish even for a day, even for an hour except for Saturdays and Sunday’s. I have been very optimistic that is because of the big picture I am looking at. Therefore, I will request investors, even the active investors and trading community - if you are trading or investing in India you need to change your – I mean those who are not already in-line with what is required, have to change the way you are looking at Indian markets, Indian equities and Indian economy.
Please understand one thing, India is going through very exciting times. We are entering in new era of economic development and everything is changing. This is an unprecedented change. The way politicians manage economy and the way the competitive world is taking shape, the way disruptive growth is happening we never had this kind of a situation earlier. During this kind of times the normal analyst and so-called experts may go wrong if they continue to do the traditional way of number crunching and price earnings multiples kind of focus.
Anuj: I remember you saying about two-three months back that a lot of people will have missed out feeling. A lot of people now have a missed out feeling on the market but do you get a sense that this year the market could continue to surprise on the upside?
A: Last year we had around 18 percent plus return on Nifty, around 24 percent return on BSE 500, it's a broader index but I would say the smallcaps, I do not know the smallcap index and I do not believe in the composition of that index, it's a small representation, in fact the smallcap stock pickers made at least 100 percent return in the last one year. Therefore, going forward in financial year 2018, I feel a similar kind of position; we may grow 15-20 percent on Nifty and smart stock pickers can make anything between 50-100 percent return. This is not something too exciting thing and at the same time it's time to be conservative and to be choosy on the market, be very selective. You cannot buy any stock listed or it is very sad that a lot of small investors get cheated; they follow SMS tips, WhatsApp is a major villain for those people who are vulnerable to that. So these are not the healthy way of investing in the market. They should stay away from such kind of things.
Sonia: Since you picked up this theme about smallcap and midcap stocks. You are generally known to take fancy to stocks that are not much loved in this market and I know you don't want to talk about individual stocks but recently you bought Selan Exploration Technology; a stock that has not given any return, in fact eroded wealth over the last two years. What kind of potential do you see in spaces and stocks like this?
A: I was looking at some stocks last two weeks, in fact I had Twitted a message - March ending is coming up, a lot of people will throw away shares which are not performing to book loss and adjust to the profit on other side, so that's a pocket of opportunity. I was buying stocks which were at one year low or multiyear low in the last two weeks and Selan was one of them. Selan was at around 10 year low. We didn't have any position otherwise. This was one of my stocks earlier, many years ago I bought and we made profit and then exited. However, as you said, in the last two years it was wealth destruction.
Selan is a beautiful company. It is sitting on Rs 130-140 crore cash and they have huge potential to expand more and more production and this kind of low oil price regime, it is making Rs 30-40 crore kind of cash flow. So the whole marketcap is around Rs 250-300 crore. There are many small and midcaps in India. Next two years is going to be a wonderful period for stock pickers. They should focus on that sector, not because they are smallcap and midcap. Many of the small and midcaps are going to grow very big.
However, as I said we have many midcap companies which are industry leaders in India today. They are not fancy; they are at attractive levels. People always want fancy name, something discussed on the media and lot of people talk about it. The structure of Indian market is very different. We have enough and more choice and there is abundant opportunity in this market.
Latha: I am going to ask you one of the well-publicised themes which is housing. It is expected that the government is going to go big guns on it and in India in any case it is an evergreen theme. I noticed that in your list you have Orient Cement and HSIL, but tell us about how you handle this theme?
A: HSIL is an industry leader and very important company, well-managed company. Their margins are improving. It is a very large company, but today it is not in fancy. It is not a great performer if you see last two years in the market and this is one of our holding in portfolio management. I think this company has huge relevance going forward when you talk about housing and housing for all the poor.
The government is developing many schemes talking about the vision 2022, everybody have a home. This is practical. Our economy is structurally so strong we can do all these things. If you have a will and if you have got really decisions – the political decisions are very important. So, luckily that is happening after so many decades of independence first time Indian politicians are taking strong and hard decisions which is very important going forward. I really appreciate that.
Anuj: Three months back we were talking about Reliance Industries in Taking Stock' and you said it is at inflection point how much more for this stock because it drives market as we have seen over the last two to three months?
A: I don’t know how to answer how much more. It will continue to give returns to investors for next half a century.
Sonia: I also wanted to ask you about Kotak Mahindra Bank because we all know that you started you career with Uday Kotak etc, so you fondness for him is well known. But you recently tweeted that the bank has a potential to grow to USD 100 billion and it has been in focus because of the possible acquisitions etc. You think it could be growing with some of these inorganic acquisitions, the non banking financial companies (NBFCs) companies that everyone is talking about?A: The USD 100 billion what I put is without inorganic potential. That is very easy. That can happen much earlier than the time frame I gave. This is again a commonsense approach and not any number crunching. The structure of Indian economy and our demography structure are pointing towards smart entrepreneurs and relevant business. There is a huge potential to grow compound at 15-20-25 percent for next 10-20 years. That is the kind of inflection point of our economy we are sitting on. And that is why I told even if you guys remember immediately after demonetisation, I was talking about - this was the biggest positive economic development since independence in India and people were throwing away shares for such a positive development. I couldn’t believe myself, what is happening in this stock market? What the analysts are doing? When we talk about revolutionary transformation from black economy to white and decline in corruption and such kind of revolutionary things happening in a country and economy, people go bearish for that. So, I don’t know, I can understand if Pakistanis do that when something like that good happening in India, but it is happening in our own country.
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