Alpha Moguls | Why Vijay Kedia Doesn’t Care If It’s A Bull Or A Bear Market
Bear and bull figurines stand in front of a photograph inside a money museum in Frankfurt, Germany. (Photographer: Alex Kraus/Bloomberg)

Alpha Moguls | Why Vijay Kedia Doesn’t Care If It’s A Bull Or A Bear Market

Investors should focus on picking individual stocks that they think will perform well instead of being fixated on which direction the market is moving, according to Vijay Kedia.

“I don’t look at the market or whether the index is up or down; whether it’s a bull market or a bear market or a fox market or a dog market, I don’t care about it,” Kedia, founder of Kedia Securities Pvt., said on BloombergQuint’s special series Alpha Moguls. “My focus is on individual shares.”

“When we talk about the market, we actually mean the index, and you know that the index is totally deceptive,” Kedia said. “It doesn’t have to do anything with the condition of the market or the economy,” he said citing the example of Reliance Industries Ltd. contributing almost two-thirds to the rally in Indian indices. And that, according to him, isn’t a portrayal of how the entire market is doing.

The key, Kedia said, is to look at ideas, products and services that will be most consumed, and the sustainability of the field you’re betting on.

The Mumbai-based veteran has a simple philosophy — invest in companies that are “debt-light”. There either should be no or very less debt, he said referring to some stocks such as Zee Entertainment Enterprises Ltd. in his portfolio. “Big companies have big debt, and they’re working on a very thin margin. One event like this pandemic, one crisis, can shake the company upside down and it can wreak havoc for them.”

That, coupled with a trustworthy business model and futuristic technology, are Kedia’s go-to filters for picking stocks, irrespective of the macro trends at play.

He, however, said it eventually comes down to an investor’s conviction in their investment thesis. “If a stock goes down below your purchase price after you buy them, that does not mean that your thesis is wrong. If the stock price goes up after you buy them, that does not mean that you are right, because the race is not over yet.”

But when it comes to investing in stocks, regret can be like a disease, he said. To combat that, investors should try and find underlying dynamics of why a stock is performing the way it is instead of just the headline ups and downs. “A loss does not disturb me. What disturbs me is if there is an underlying problem with the stock, and yet I’m making money on it.”

Watch the full show here:

Here are the edited excerpts from the interview:

Vijay, in the current times how are you going about building your portfolio?

None of my stocks or none of my investments are dependent on the condition of the market. But that does not mean that if the index will go down to 7,500 like it went down in March and my stocks won’t go down, I’m not saying that. But certainly they should outperform the market. As it is when we are talking about the market, we are talking about the index, and you know that this index is totally deceptive.

It doesn’t have anything to do with the condition of the market as well as the economy. Reliance is contributing maybe two thirds of the rise or more than half the rise in this index. So I think that is all deceptive.

So, none of my investments are based on the condition of the market. Certainly, it is based on the economy and plus what they are doing in their own field. So, that is more important and this is what I had been doing even in this current scenario.

I don’t look at the market or whether the index is up or down; whether it’s a bull market or a bear market or a fox market or a dog market, I don’t care about it. My focus is on the individual shares and that is how I plan my investments.

Currently, the theme which I am playing is, even after this pandemic, we are doing some kind of activities, we are consuming something, we are existing. So I just look at the things that are going to be there or the sustainability in that particular field, whether there is Covid or not. So this is how I plan to structure my investments and I keep on changing them from time to time.

I just want to understand from you that people or large investors like you make big money when you bet on something with conviction? But in these times of uncertainty, how do you get the conviction to put big money to work or is it that right now you’re not putting very large money to work, you are buying but you’re buying small. How are you doing it?

There is one thing that I realised and experienced in this market is that there is always uncertainty. The degree of uncertainty could be large or small but when you are absolutely 100% sure in the market; usually, it happens when you are at the peak of the cycle. Otherwise, there is always fear in this market. Frankly speaking, it doesn’t bother me.

I’m not worried about those uncertainties. The idea is to find shares which would do better than others, where you have less fear than in the field/sector where there is more fear. This is what our job is. So, accordingly, I am planning my investment.

I’ve learned just one thing—give your 100% or don’t give even 1%. It is like, if you love, you love 100% or else you don’t love at all. So, somehow I haven’t learnt that ‘abhi thoda kar lo, aur thoda iske baad karenge’. (Do a little now, and do a little later).

When we were doing the first Alpha Moguls, you had told me that you at times are happy if after you buy something, it falls down. Whenever you buy, things fall down and then you tend to buy more. Therefore, my question is that in the current times, because of your track record or because of the fact that there is Covid, are you buying 15-20 or 25% or are you buying a lot more?

I will tell you that I haven’t improved myself on that subject. Why? I will tell you. What happens is, suppose if I buy something and as I said that whenever I buy, after that the market falls. Let’s suppose the market does not fall. If I buy less and market does not fall or the stock price does not fall and it goes up; then that pain would be more to me. Then I would really have sleepless nights that I should have bought.

So, whenever I have money, I buy all the shares and then when the market falls, I regret. Now, this regret is better than that when I did not buy the shares and the market rose.

Therefore you’re saying that right now also, in these times you’re going out and you are fully invested?

As of now, I’m fully invested.

In the last four or five months, did you ever reach a point wherein you thought that let’s sit on a bit of cash?

Yes, of course in March and April, I was in cash, maybe 5% of my portfolio that is not large but I was really panicky and I thought this world has come to an end so I sold some of my stocks and I was on cash for some time. But as I said on various platforms that I am an enemy to cash. I can’t hold money. So, that has worked in my favour in my life. In June and July I got some ideas and whatever cash I had, I deployed it.

I don’t know that whether your portfolio before March, if you had 10 shares, let’s say, then you were completely adequately allocated or no. So my question is some of your portfolio stocks which would be in your portfolio pre-Covid might still be lower than your purchase prices, maybe, I don’t know. My question is, in the changing business environment of a post-Covid world, are you adding money to those businesses which were already in your portfolio or are you going out looking for new names because there are a lot of new businesses and new consumer behaviour that has now come in.

There are many shares that are below my cost price—maybe six or seven shares were below my cost price. So, some of them I sold in the month of April and May and even June or maybe July also. By the grace of God, some of my shares have really done very well and they have gone up maybe two times, four times, even five times after the March low. So, that has covered up somewhere.

I will tell you why I sold my shares; I did not sell my shares because of the losses. I sold my shares just because I lost confidence in them.

I thought maybe their business model is not going to work after this Covid thing or maybe I did some mistake; I bought them and I gave a high price for them whenever I bought them... So, I tried to rectify those mistakes and I sold some of my shares. Let me tell you, if a stock goes down below your purchase price after you buy them that does not mean that your thesis is wrong. Also, if the stock price goes up after you buy them that does not mean that you are right because the race is still on, it's not over yet.

So, loss does not disturb me. But if there is some problem in the underlying story of the stock, that disturbs me more even if I’m making money. That is why I sold some and I held some.

So, some of your investments in the past that I’ve seen have been very new-age business models too – the Book Vendor, Repro for example. It just came out of the blue; I mean nobody thought of the business model that way. Now, in a post-Covid world, with changing consumer spends, changing consumer preferences and changing work habits maybe, a lot of new business models have gotten added. The stock of the year is Dixon, which I mean, back-end manufacturing was not even a sector one year ago and now everyone is talking about that. So my question is, have you come across something which is very interesting as a business model in a post-Covid world?

Yeah, of course, although let me clarify that Repro did not do well for me so far. So it is somewhere around my cost price but that does not matter. As I said as long as the underlying story is still intact and I think story in Repro is still intact but when will it be played out that I don’t know, time will tell us. I’m very comfortable in Repro. I don’t want to buy more because I have enough shares; maybe 80% or something whatever it is. Coming to your second point, yes, I have found some new story. For example, since it is already in public domain so I can give you the name, just to explain it in a better way but I am not recommending anything. I don’t want money from retail investors. Please be careful that not necessarily that what I’m talking, whatever thoughts I’m leaving will do well. You can see what Repro has done for me, you can see what Everest Industries had done for me; so please be careful and do your own homework.

I bought Zee Entertainment, so it’s an old company as we all know – the first private channel for private media/entertainment company in India after Doordarshan. I bought it because the stock was really available at a very cheap price. Once upon a time it was Rs 500 and I got the shares at Rs 130 or Rs 135. For the simple matter that even in this pandemic time as you said, an uncertain time, we are watching TV only, right?

We are stuck to all these gadgets and people are watching TV. So, the business model is old but the stock price was very cheap for other various reasons that people know of. I thought that those things are going to recover very soon and plus, they are also diversifying into what you can call a futuristic business model – like OTT such as Netflix etc. So that was one reason why I bought Zee Entertainment, ZEE5 is the OTT platform. Now, they’re also trying their hand in what you call pay per view; this is what they announced a few days back. So that is something new in India and of course it’s at a very nascent stage but I think going forward this company should do well because of the OTT and because people living in this pandemic are watching television and they are the largest in their field having 18% market share. It is also a debt free company. So looking at all those parameters, I bought Zee Entertainment, although it is not a recommendation.

Vijay, there are a lot of other businesses which also came down and the prices came down. So, Zee – their price fell and similarly, there was price damage in INOX and PVR or hotel stocks or mall companies. So, how did you then decide that maybe you want to go for this versus not the others? You might have looked at some of these businesses, if not all. So how did you decide that let’s buy this and not the other?

The first thing in my thesis/investing principle is that a company should be debt-light – either there should be no debt or there should be very less debt. So the companies which you’re talking about, like airlines or PVR, these big companies, have big debt and they’re working on a very thin margin and even one event like this pandemic, one crisis can shake the company upside down and it can wreak havoc for them. So I usually don’t go for such shares.

Usually, I go for shares which have very less debt on their books. So that is why I never bought IndiGo or PVR. Of course, they have good business models, but I don’t go for such kind of stocks.

So, I bought Zee and I bought some shares in Tejas Network too because they are into telecom and now they are manufacturing equipment for Fibre -To-Home, 4G and 5G and as you know, Fibre-To-Home is the future and the new disruption after the WiFi technology and all. Of course, half of India is still using 2G. So that 2G will be converted into 3G. So that 2G is still to be converted into 3G and 4G and then, the next step is 5G which is a hundred times faster than 4G. So that is also going to come and that might take maybe one year or two years since Jio is after 5G. So, these companies are manufacturing equipment for this technology. It’s a technology company, a debt free company, and again, once the stock price was Rs 500 it fell down to Rs 35 or Rs 40. So, that was an opportunity. So, the thesis is very simple — debt free company having futuristic technology and that’s it.

For example, Tejas may not have debt, but certainly has one problem which is receivables from the government which has been a pain point. Does that not worry you or how do you overcome this worry?

Of course, that worries me a lot. Every quarter, the company declares it received Rs 20 crore or Rs 30 crore. So, that is a problem, that’s a large sum ranging around Rs 100-200 crore. Even then, the company has more than Rs 200 crore cash lying in the bank and when I bought the shares; the market cap was just Rs 400 crore in May. So, just imagine more than Rs 200 crore lying in the bank, Rs 200 crore you have to receive from the government, which ultimately you are going to receive, sooner or later. The government has marked money for the revival of BSNL, too. So, the money is going to come. Even when you write off that money for the time being, having Rs 200 crore in the bank and with Rs 400-crore market cap, I thought what else is left to research here?

Are you looking at companies which were at the peak and have been beaten down or are you also looking at companies which were not necessarily at peak before but are moving up because specialty chemicals, pharma, the back-end manufacturing, FMCG – all of these sectors are trading at new highs. Are you not looking at that pond at all?

First of all, that is not my criteria that I buy only beaten-down shares. Before buying any shares, I am following them for maybe two years or three years or five years. So it is not that randomly I select any shares and I buy them.

It is not necessarily that I buy beaten-down stocks. It depends, when I find that the fortune of the company is going to turn around, that time I will buy the shares whether it is below the peak or it is at new peak does not matter to me.

Now, coming to like all these FMCG and pharma shares, those are not my cup of tea. Of course, I have possession in Neuland Labs, which I had bought in December 2019, again it is in public domain and shareholding pattern also shows. So, it is not a recommendation. I found that the stock was very cheap. So, I usually cannot buy shares at 40 or 50 and 60 price-to-earnings ratio. No, I don’t do that and why should I do that? I’m not a mutual fund, I do not have a large sum of money that I have to put Rs 5,000 crore in the market. So, I have to find hundred shares, I have to select different verticals or different sectors. So I’m not bound by all these things.

When I am getting something which fits into my parameters valuation wise and debt wise, then why should I buy something which is expensive and which is not going to give me peace ultimately?

Do you have a sense of what sectors which could be leaders? Any one or two of them or themes?

I’m not sector-specific, but I think pharma should be doing well but everybody’s talking about it and when everybody’s talking about one sector, I feel worried about it. I’m still holding the Neuland Laboratory, which is an API theme but they are much cheaper than the pharma shares, but I’m comfortable because of the valuation.

Everybody is also talking about telecom. Are you worried about telecom?

With telecom, we are still at a nascent stage because telecom keeps on being disruptive. As we discussed just now, 2G then 3G, then 4G and now 5G. I read somewhere that in Australia or China they’re testing 10G. I don’t know what they’re talking about. So, there is endless opportunity in telecom. I read somewhere that someone has invented a television without a screen and there is no background. So, whatever we’ve seen in fiction movies with teleportation and other things, they are going to be true.

So, the opportunities in telecom looks endless but I am not comfortable buying Bharti Airtel for now. This is for me; not necessarily that you should follow what I’m saying because I am happy that I am getting my protein from maybe bhindi (okra) and you are getting your protein from chicken. That does not mean that I am right and you are wrong. It is an individual’s choice.

Maybe, telecom has humongous opportunity. Also, the sector which is providing you very big opportunities, it is not necessary that all the shares in that sector will do well. That also does not happen because the idea is to identify a company when it is growing vertically, not horizontally. So, when companies start growing horizontally that means you are not going to multiply your money. You may not get 10 times or 20 times or 50 times or 100 times but you may get percentage wise returns. This is what I feel.

Vijay, what do you mean by ‘regret is a lifestyle-disease of equity investing?’ This is something that you said to me a few days back.

If you regret anything, until you are in the regret mode, negative energy will keep flowing within you. It will have a negative impact in your next decisions. The idea is, in the share market, you are in the regret mode every time. If you buy some shares – I bought GMC, it fell and I regretted it. If I had bought GMC and it would have risen then I would regret whether why I bought only 1 lakh shares, I should’ve bought 5 lakh shares, I had money. So, I still would regret. So, regret and stock market are friends and will stay together for a lifetime but they are going to have a negative impact when you make future decisions. So, the idea to come out of that regret mode as soon as possible. I have said this earlier too, remember this guru mantra – ‘jo mil gayaa usiiko muqaddar samajh liyaa – jo kho gaya usko mai bhulata chala gaya, mai jindagi ka saath nibhatachala gaya’. So, in a share market always remember what’s gone is gone and what’s in your hand is with you.

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