Porinju Veliyath Recommends BBTC, Bengal & Assam Company

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Srilata Rao
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Porinju Veliyath Recommends BBTC, Bengal & Assam Company

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Porinju Veliyath Recommends BBTC, Bengal & Assam Company as multibaggers of the future

There will be surprising amount of money coming into the Indian equity markets from Indian households in 2017 and 2018 going forward.

Porinju Veliyath, Founder and CEO, Equity Intelligence India, discusses his markets outlook for 2017.

You have been quite vocal that this demonetisation drive and anti-black money drive will actually be good for equity markets and you believe that there is a sale going on in equity markets right now, a year-end sale and therefore people should go out and buy the stocks that they want. Why do you think so?

Of course, it is not a very deep discount sale but we have lot of negatives being discussed in this last quarter and perhaps in the last two years there has been a tendency among a lot of large number of journalists and lot of people in the markets to have little biased view about things happening. Someway they want to create negativism around things happening in this country so that could be affecting the investor sentiment definitely in the last one year at least. But that cannot go on forever. There are fundamentals in the business, in the economy which you cannot ignore for a long period of time.

Demonetisation is not a single big event, it is just part of a crusade or it is part of a large process, much required things happening in this country against corruption. So from an investor point of view, how can you analyse that? It is bit complicated. If you keep it very simple, I would say the organised sector is going to benefit immensely from what is going to happen or what is happening. When we say organised sector, the listed companies come into that space. They are supposed to be organised. If you bought on merits a year ago, two years ago, three years ago, many annual reports of the companies used to say in the directive reports, we are suffering from competition from the unorganised sector or basically the unorganised or the black sector where they do not pay the exercise duties properly or they may be avoiding the state government taxes.

So the organised sector had to compete with them which was a challenge in many pockets and many companies and many industry wise. That is going to change radically now. So basically the listed companies in general are going to benefit with higher revenue, higher profit margins and more importantly a clean economic environment.

It is not at all negative for the stock markets. It is very positive for the stock market but at the same time there are other aspects also playing for the market. There are global aspects. There is slowdown. So there is disruptive growth happening. So those all are different. What I am talking is in general the impact of demonetisation and the other action against black money and corruption that is generally speaking positive for the equity investors and that technical factors are coming up.

So while you are saying that long-term, things are going to get okay but the fact of the matter is quite a couple of uncertainties ahead of us. January earnings are supposed to be really a bit of a shocker in terms of how negative growth can be because of demonetisation, etc, and then, of course, you have got the big event -- the budget as well. How long do you think this volatile uncertain phase for the market is going to last before we finally see that one way move up kind of rally?

I think that uncertainty for the market is over. Potential uncertainties will continue to be there and there is no fun in life without uncertainties. If everything is certain it is going to be very boring not only in investing but in the whole life. So let us expect there will be uncertainties forever. So that does not mean you go negative about it. Lot of those uncertainties are created. It is campaigned and I do not believe they are really uncertainties.

Now coming to the quarter or two of decline in revenue and profitability for some companies, there is no uncertainties. It is certain. So it is not about uncertainty but equity investing is definitely beyond a quarter or two. Basically investment is supposed to be much more than many quarters or even maybe more than two years so that is the way one should invest in equities.

Indian equities today are at an inflection point along with the economy. In economy, the total structure is changing. I have talked one year ago about the architecture of Indian economy is changing. We have to accept that. We have to change with that.

You are saying that the worst of the fall is already done with?

Yes for the markets there was no big fall that have seen. Now after all these negatives, we are talking about 400-500 points fall in the Nifty. This can happen for some kind of low sentiment in the market. So I do not believe even the markets have fallen. What I feel is in 2016, we had a very flat market despite the small ups and downs. Similarly even 2015 was not a great year for equity. It is for the watchers of Nifty and Sensex there are smart stocks pickers making money in all this kind markets. It is a different aspect altogether.

Even in 2017, I feel Nifty is going to have a very reasonable and an impressive bull run in 2017 for various aspect, particularly in aspects what I was indicating earlier is the power of domestic investment. The Indian households are going to be very big investors in Indian equities because there will be discouraging factors, elements for investing in the gold or real estate kind of things.

Interest rates are going to decline though I do not know which month is going to come down and all. So all these aspects are point, again there is more of white than the black going forward. Everybody will agree to that. So all these things indicate we have tremendous savings in our households and if that does not flow into equity, that was our problem. So that is going to change for the first time. There will be surprising amount of money coming into the Indian equity markets from Indian households in 2017 and 2018 going forward.

The broad construct may be that the Nifty will have a reasonable year and within that, spaces could do well. What are your top two or three themes that you think will do well in 2017-18?

We should bet on higher capex by the government going forward. The tax system is going to change now. Last week, people were so much worried that the long-term capital gains tax could come back. Even if the long term gains are taxed at 10-15%, it is still very favourable to the investing community.

Our biggest problem is the taxation structure, it is too complicated. We need to simplify the taxation system. The honest tax payers are suffering more than the others. So we need to restructure and simplify our taxation system. I hope in next two years, something is done in that regard so that more people are in the tax net. This is the first time in India’s history that a serious effort is being done by the government for bringing more people under the tax net and that will be very effective and you are going to see a lot of money coming by way of direct tax because of demonetisation.



For indirect tax, GST is going to be a game changer. So in both these things direct taxes and indirect taxes will have much more tax collection and that will result in more capex.

As for a theme, I am very bullish on select infrastructure companies even though they did not perform really well. Of course, some of them have done well -- stocks like J Kumar, Sunil Hitech. Some of them I used to buy also and there are some railway companies which can be under watch. Stocks like Texmaco Rail, Titagarh Wagons. The Indian equity market still has tremendous value and there are a lot of opportunities.

You have picked up some stakes in or reinvested in a company called Saksoft. I know you have been talking about the cashlessness theme and IT companies related to that. Is that why you are buying into these companies -- a Saksoft and if I am not wrong, an RS Software is something that you have liked and you are probably buying as well, why are you buying these companies?

We discussed during Diwali, the e-governance companies and the companies which could benefit from less cash economies taking shape. Saksoft is a company not for the domestic market. It is a very cute small company with Rs 200 crore market cap. There is a smart guy who founded and is managing the company. They are very open and are very active in the US and UK markets. The balance sheet looks interesting with almost no debt net level. There are a lot of these small Indian companies. I know that can create huge wealth being and has India specific cost advantages and are cost competitive. These companies can be globally very big.

If you make a portfolio of 5-10 stocks and two or three of them do well, that can create huge wealth for the investing community.

Are you happy holding on to Saksoft for the foreseeable future or is it a watch and go play? I also want to ask you about RS Software, I think that is something that you like, it has got cash on its books, but a large client is now out, VISA was the large client and they are out of the business now. Why should anyone believe in RS Software, the management and the product?

I just felt it is too early to write off the company. Now when you say VISA was their client that means this company has something, you know, they are capable of doing big things and it has got a clean balance sheet and they are sitting on cash. VISA has gone, the business has gone and the stock price has come down from some Rs 400 to Rs 60. That is how I started looking at this stock. Now I have got a habit of catching falling knife as we have discussed earlier, so I like this company because of the clean and healthy balance sheet and promoters seem to be very passionate about what they are doing.

So in that way I found this company-- I had some exposure to Datamatics. I feel there are a lot of small companies in Hyderabad which people used to write off . I met some of them, found them very smart guys so you do not just generally write off a company because it is from a particular geography or it is from a particular industry.

Investors have to be very flexible. There are not very water tight rules to follow/, it should be flexible, it should be learning, keep your eyes and ears open. There are 15-20 companies in that sector, some small IT companies, who have got a platform for the cashless economy. Very soon government business and all the state government are going to spend money on IT related businesses going forward.

I am talking about huge, billions of dollars orders could be coming into these kind of small companies who have created a platform and has a lot of expertise to execute such business orders.

What should people do with your erstwhile favourite Talwalkars now? Should they stay put or is it time to book profits now?

Talwalkars, I am holding tight in my portfolio management. Talwalkars seems to be an interesting stock. It is not going to be affected by any kind of these economic developments. It is a futuristic business I strongly believe in.

Sometime ago, you had mentioned sell Nestle, sell Colgate buy FCEL, what is your view now after demonetisation?

It has nothing to do with demonetisation. There would not be any companies effected positively or negatively by demonetisation in the long run. I do not consider that part at all for analysing these companies.

I am very bullish on FCEL or the Future Consumer Enterprises for the next many-many years. We started buying at Rs 10 and we are holding this stock. I am very confident about this stock comparing to the other stocks in the industry. That seems to be having more visibility going forward, their business model is fantastic and it has got an important role to play in the Indian economy. And the promoters are also talking very highly about the company, This company from Rs 3000-4000 core kind of a revenue can grow to Rs 15,000- 20,000 crore over a period of time and it can become profitable in another two years time. So FECL definitely a very good stock to continue to hold.

Many people are selling good stocks. They are looking at companies which are seemingly affected by the demonetisation and selling. That is the biggest blunder they are doing.

There are some cement companies. For example, I started buying Orient Cement, the stock price was Rs 220-230, it came down to Rs 115 yesterday. So just because of you know there maybe some slowdown in cement at this point of time, maybe it can go on for another one or two quarters but these companies, these businesses are very important for this country and we are going to see much higher spent on infrastructure going forward.

So I am bullish on two segments to be frank. 1) Companies affected by demonetisation; I am bullish on them at the beaten down prices. 2) The other segment I am bullish on are companies benefitting from demonetisation.

Give us some bright new 2017 idea. So aside of the names that you have already mentioned, give a top stock idea for 2017 for our viewers.

This morning I was looking at a couple of stocks. We used to have a lot of fancy for the holding companies earlier. Another six months and nobody will talk about that. But maybe it will come back again and really these companies can have a much higher discounting. The Bombay Burmah Trading Corporation, BBTC.

Another one is the Bengal & Assam Company. These two are the holding companies. I want investors to explore these companies, what they are holding, what is the net worth, what is the worth of these companies and what is the price.

I think these companies are available at something like 85-90% discount to their intrinsic value. So there is a chance that this difference can come down to say 50-60%. Even in that case, that is a huge multibagger, these stocks are to be watched. Of course, I am not very happy with the promoters of both the companies but even if they have some problems, they may change going forward .

I want to repeat to the viewers to look at the turnarounds in this economy because the new rules of business are going to make a lot of companies change their profile. Living with black money is going to be tough for the large players at least. So there is going to be major shift. A lot of smaller companies, , in the midcaps, are listed only on BSE. They are going to be multibaggers.

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valuepicker
Posts: 144
Joined: Mon Jan 09, 2017 8:44 am

Re: Porinju Veliyath Recommends BBTC, Bengal & Assam Company

Post by valuepicker »

Both are great picks will surge soon
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