Porinju Veliyath, Equity Intelligence India, says if equity investors cannot make 10 times the money in the next five years, they are foolish.
Equity Intelligence PMS funds continue to outperform and have given 42% return on a CAGR basis.
It is 46.98%, after all the charges last financial year. It is a good feel but more importantly investors should understand that a lot of them are experiencing it. I can see a lot more investors in this country getting their own funds. I know people who have made more returns than 46.98%. Those who invest in equities are making money in the last three-four years. People are making it 5x, 10x, 15x.
E-governance stocks like Vakrangee
It is yet to be proved that those stocks were at a very low level. I was watching what the government is doing and how the technology is emerging to help the country, how the government manage the systems, so that one’s companies have relevance going forward. The relevance is still there but we do not have very solid companies in that space. That is one problem. It will evolve and many companies will emerge as major players in that field going forward. Again technology disruption could disrupt some of these companies themselves. It is not a very easy space where you can find stocks to buy. I would say small investors could even avoid IT, if you do not really understand what these companies are doing.
GIC Housing Finance and housing finance companies. Next good investment opportunity
Housing finance companies are in full focus of the market. That is also wrong. India is trying to build 2 crore, 20 million houses in the coming years and that is a huge number. There are lots of themes, some ancillary businesses to play with, so investors get the macro picture. There is a lot of money to be made in that sector, cement companies could be there, there could be asbestos sheet making companies. There are a lot of companies in that space. Many of them are not doing very well but in the next two, three, four years, the whole structure of the industry is changing.
Many players, many sub segments of the industry will be creating good wealth for the shareholders, many new companies will emerge, many companies and unlisted ones will come with IPOs.
When I talked to you last time, about $100 billion domestic investment was coming into the market. I have a theme. A lot of people are underestimating what is happening in this country. Major historic structural changes happening in the economy with a lot of relevance to equity investors. People are underestimating, people are looking for the month or the next six months or one year. It is a very wrong. You should play this theme for next 10 years and there is lot of money and Nifty is at the bottom today. Many people think it is at the peak. In my opinion, we are at the bottom, we are 5% higher than two years ago.
You say buy chor (thief) companies which are becoming good. Where are you hunting in this so called turnaround quarters?
Thank you very much for that question, The word chor managements are something very often used in the stock markets. People always blame the managements but it is true that while we have thousands of listed small and midcaps and larger small caps. Many of these companies were traditionally family managed and most of them were much worried about sharing the wealth with minority shareholders.They never considered minority shareholders as partners.
People used to buy real estate paying cash. So there has been a huge structural change. People will not have much incentive to remain chor, they have to change.
It is a historic thing happening in this country and if equity investors cannot make 10 times the money in the next five years, they are foolish.
Latest stock recommendations
I am happy always. But due to the restrictions from the regulator, they have done some regulations regarding research analysts kind of systems for the good of the market to avoid manipulation and to avoid investors being cheated. So there are lot of restrictions to just talk stocks.
Today the biggest opportunity in India is in smallcaps. It is a mind-blowing opportunity for the next 5-10 years, trust me. Even though some of them might have gone up by 10 and 20 times, there are still stocks which are laggards. They are not getting any attention. Even promoters are not doing anything. There is going to be a major change in all these companies from the promoter side, from the way investors are looking at them. But small stocks I cannot really talk on.
We were discussing about that housing theme. Actually I was looking at two companies. One is Everest Industries. There is no hurry to buy these stocks today. You could buy it at 5-10% higher. There are enough opportunities in the Indian market.
Everest Industries is not fancied. There are a few companies in this sector. Even Ramco Industries which is also a holding company. It has around Rs 2000-crore market cap today. Ramco Industries holding in or Madras Cements kind of stocks should be more than Rs 4000 crore. That is always a margin of safety. In times of political uncertainties, you can buy these stocks at attractive levels. These two stocks came to my mind because we discussed the housing theme.
Some of the cement companies are still under priced.
Mirza International - Red Tape shoes company
In case of Mirza again, management perception was not very good earlier. I bought the stock two-three years ago at Rs 20, Rs 25 level. Sometimes, there are stocks available for Rs 20-30 and market cap is Rs 100-200 crore. The bookish people in the market tend to sell penny stocks, In India, this is the season to look at such companies. Remember, not every small company is good. Some of them will close down. Maybe 30-40% of the small companies are going to close down in the next few years. So do not get trapped in them.
Use your common sense, understand what the company is doing, what is the relevance of the company’s production services going forward in this country in a changing environment, in a changing global environment. There are companies with huge assets maybe a 110-year-old company with Rs 250 crore market cap. It has got Rs 1000 crore revenue and reasonable debt, but the promoters are chors (thieves). But they will be forced to change. At least, the next generation will take over. So those companies are available now at throwaway valuations. But things would change for these companies. Corruption levels, black money are going to come down significantly.
Common sense and wisdom is the most important requirements for picking stocks and choosing them.
Federal Bank - turnaround quarter for Federal Bank
Federal Bank got fancied and some large brokerages came out with buy recommendation. Normally I do not look at stocks after that. So it was a good story. We have been buying in portfolio management when the last Q4 came. Common sense says the quarter is supposed to be bad. They came out with Rs 10 crore profit. Even, if they came out with Rs 50 crore loss, I would have bought it at Rs 45 because it was a very special situation. It was a onetime loss or this is not going to repeat every time so that is called common sense investing and keeping things very simple.
People number crunch too much and go into too much details. They do not make big money in the market. They miss on the big picture for which you do not need a lot of number crunching.
If you have the insights into the future of companies, the industry, environment or the economic environment in the country, everything has to be blended before picking stocks, before coming to a conclusion.
India is a huge emerging market, transforming from a $2 trillion to a $5 trillion economy in the next 3-6 years. You should think twice before making a sell recommendation on a stock in this kind of an economy.
Evergreen favourite stock bought when you started your PMS business and you have plans to keep that stock till the time you will run your PMS business. What is that Maruti or HDFC Bank which you think you are happy to own for the next 10 years?
Neither of them. I am a small guy and I am very convinced about the space where we have bought in the next 10 years. That can happen when you keep 10 stocks one of them or two of them can evolve to be a 10-year holding. This you will realise only after 10 years. If can’t exactly predict that in the next 10 years this stock is going to do well.
It is better to evolve. You go on picking stocks, what is looking attractive with reasonable outlook and visibility going forward at least for the next three, five years time. Multibaggers just evolve, you cannot really get readymade multibaggers.
My tweet followers have been asking for two stocks to buy for the next five years, 10 years and they never asked me in November-December. I was giving dozens of stocks in November and December just a few months ago nobody was willing to look at that. When the market goes up, when the media talk about the all time high index and Sensex, then people want to buy stocks. People never learn from history.
Past crashes in the market or bad pockets of depression were all opportunities. In the future you are going to have global events without any relevance to Indian markets. But Indian investors will panic. The future depressions or potential corrections are all opportunities. If you decide on those things in advance, then you can act when people panic.
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