I Don’t Like Gold. It has no Fundamentals: Porinju Veliyath

To be very frank, I don’t see the difference..these are academic things. Ultimately what everybody is aspiring to do is value investing and wealth creation. So growth comes under that, it’s not a different kind of investing, If we talk about investing, in the context of Indian equities, stock picking is the name of the game. That is what investors should look at, whatever name you call it by, growth investing, value investing, momentum investing, and so on.

I have been very positive on Indian equities, especially in the last 4-5 years, since 2012-2013, because I find a deep value in many of the businesses and companies listed in India and that still continues. Even though there is some decline in multibagger potential stocks, the value picks are still there. The opportunity to pick value and create 30, 35, 40 percent CAGR in the coming years, when you look at it from that point of view, the Indian market is still full of opportunities. I used to sometimes say that it is a paradise for stock picking. That idea is based on fundamental factors of economy and the markets. I am not a technical expert and I don’t believe much in technicals, I only believe in stock picking and creating wealth.

To be very frank, we don’t need another set of triggers for the market to go up. The triggers have been happening in the last two years due to a major shift in the study of political management of the economy – that is the major trigger, that one trigger will lead markets higher in the next 5 to 10 years’ time. The Indian economy and markets are at a historic inflection point, basically because of the structure of the economy and the recent political management of the economy.

People are waiting for the numbers, but numbers may take time. One of the triggers could be the numbers reported by companies going forward in next one year, FY17 or FY18. So that could be a trigger which you are looking for from a technical point of view. Another trigger already in place is foreign fund flows, the foreign investments coming through in Indian equities – that I am confident would continue to be there. Another trigger is domestic investing which I have been recently talking about. Domestic investors are hardly investing in equities. Whatever we have seen today is a small fraction of the potential money which can be invested in Indian equities. In two-three years I see a high level of investing by domestic investors. But you can’t be bullish on the markets just because money is coming in. The fundamentals have to be there, the numbers have to be there.

One good thing about the Indian market today is that all these factors are going together – the fundamental and technical factors. So I am looking for a new level on the Nifty in the next two to three months. Indian markets have been correcting in the last one year and we that correction in almost every sector. We started with metals and commodities, then we had a pharmaceutical meltdown. Many companies like Sun Pharma corrected from their peaks. Among the IT companies, Wipro has closed at its one-year low today.. Infosys is at a one-year low. So the Indian market has been correcting in a healthy manner in the last one year and I think it has been consolidating well and it is poised for new highs without much delay.

I have talked about broking firms last year on many platforms and you may have seen the movements in Motilal Oswal and a few other companies. Another important aspect is that most of these companies are very well diversified..they do merchant banking, private equity, fund management. So I’m very bullish on that sector. As you indicated, when domestic buying accelerates there is huge scope for these companies. So investors should look at selective broking companies.

These two are stocks I have invested in this year. I shifted from Biocon to Jubilant Life Sciences a few weeks ago. That is not because I am bearish on Biocon. Biocon is a great company. It can create further value but there can be small corrections, some consolidation, it may not move for some time. You asked about making profits – that happens in trading. In value investing nobody makes profits or losses. In value investing you’re supposed to grow your assets, that’s the style of investing. So nobody can say how long to hold on to a stock. My style of operation, especially when I do portfolio management, involves sometimes taking advantage of medium-term opportunities in the market. That is a very good thing if you are looking for superior returns. But holding stocks for long periods of time...sometimes, we have a great stock and a very good company with a huge future potential, maybe someone could hold stocks for 10 years or 15 years, maybe more. Why should he end up selling the stock, when he can own the company? When you own a company, that question of selling and booking profits doesn’t happen. If you buy stocks with that spirit, you are an owner of that business, you grow with that business.

I didn’t invest in PSU stocks for over a decade. But one of the first stocks I bought, around Rs 300, was HPCL. The main reason for that was the government attitude then. These OMCs were very unethically and unprofessionally managed by the government in those days. These are publicly-listed and publicly-owned companies. The government cannot manage these businesses in a way where they have the sole power of decision-making. They can give away the profit of the company as subsidies. That era was changing. The reason I started buying HPCL at around Rs 300, and I tweeted about it, is that there is a change in the political management of these businesses. So I predicted it before the price increase that happened recently. I am not going to say anything about booking profits, but, these companies are going to be better valued going forward. The worth of these companies like HPCL, IOC, BPCL... just imagine, in such a large country with 1.25 billion people, and all of them are consumers, they are paying for petroleum products, just imagine what the replacement cost of these would be. If these companies are given freedom to operate, it can increase their profits and shareholders can make more money.

I used to talk about NBFCs some time back. In the recent times, I am not talking because everybody else is talking about it. As simple as that. I don’t have a role to play there. I normally pick a stock or suggest a stock when it is not fancied, when everybody is feeling bad about it.

Anant Raj and DLF, I was talking about them last year when times were really bad. I first talked about them when DLF came to around Rs 100 and Anant Raj was around Rs 30. I saw deep value considering the assets they own. There was a huge gap between how the market was pricing them and their real value. Anant Raj was available at 80-85 percent discount, going by the market cap. DLF had a different kind of structure but there was value in that stock too at that point of time. But that sector is not fancied, and now the stocks have gone up. DLF has moved up, Anand Raj has doubled from its recent bottom. But these are only some segments of real estate. Then there are stocks like Godrej Properties, Shobha Developers which are well managed..so investors have a choice of high-quality stocks in the business of development and real estate. On the other side, there are land owners. They own assets, lease model, that kind of thing like DLF and Anant Raj. I find value in both these segments. Investors should make a portfolio of say 3-4-5 stocks in the real estate sector. At the same time, over-exposure to one company can be a problem because there are industry specific challenges, some of them are highly leveraged, some lack management quality. So these companies are all very different. Hence, it is always better to keep some deep value stocks, taking some risk on the management or balance sheets. On the other side, excellent companies like Sobha Developers, Godrej Properties, just for the business model – India has a long way to go in that sector. A lot of Indians need to make homes and as the economy progresses, there will be more demand for government spaces. Right now, there is a glut. There is more supply than demand. And I don’t expect this situation to continue for a very long time. And in some pockets of the country, there is too much of a problem, like in Delhi or Gurugram. A lot of investors have been taken for a ride, and there is a mess in the industry. We should find consolidation, some of these companies are really coming out as champions in the industry.

Again sugar stocks had a very big run, some of them ran up as much as 10-20 times. It has caught investors’ fancy and I don’t like to comment at these levels. There is no harm in avoiding some of the last drops of that juice. But there are some companies that are worth holding, some of the UP-based companies.

I share some of my ideas, some of my thought processes, maybe 2-3 in a month. Two months ago I was talking about J Kumar Infra. There was some negative news and the stock dropped from over Rs 200 to Rs 105. So this is called irrational panic created by the trading community. So the news was that one political party made an allegation that the Maharashtra government is doing them a favour by giving them the Metro order. Actually, it was just a dirty political game. But fundamentally, technically and legally it was given that order and everything was in place. There was no change in the fundamentals of the company but because of the negative news, traders pushed the stock down by 50 percent. I think it’s a great company, I hold the stock, I was buying it in the last two weeks. This shows how market panic on irrational news creates opportunities for rational investors.

There is no hard and fast rule. It is dynamic. Number crunching, common sense, and insights into the future of the company and its business are the most important. You need to understand how a company will be able to generate wealth for you in next 2-10 years’ time. Everybody has to develop that insight themselves.

It’s one of our core holdings in the portfolio. We have been buying when it was at Rs 10 a year ago. The business model of the company is futuristic. I was buying at Rs 5 as well about 2-3 years ago. I was buying this company when the perception about the group wasn’t very high. The retail sector also had issues as companies were not able to deliver numbers as per investor expectations. FCEL owns the Nilgiris in south India. In fact, I looked at this company because of their deal to buy Nilgiris. It’s a 110-year-old trusted brand in south India. But it’s only one small segment for the company. This company is fully integrated. It is making a loss in terms of the bottomline. Next year too they will make a loss. But they are building a very important business for the future. One food park is ready at Bangalore. Their business model is to collect agri-products from farmers and then grade it and brand it and sell it through their own and others’ networks. Branding is also very important. They have made arrangements with some stagnant European brands and they are making very cost-effective kind of products. The company may be making  one or two more food parks to cover the entire country and they are projecting Rs 20,000 crore of business by 2021. I fell it is achievable in this country. India is a very special economy and we are in a sweet spot. These kinds of businesses can go a long way in the coming years. We continue to hold FCEL and we don’t have any target for it.

Yes it was a great period of time in my life. From 1990 to 1999 I was in Mumbai. I was a floor trader with Kotak to start with, in 1990. In the latter half of that period, I was with Parag Parikh who was involved in research and fund management. I came back to my hometown in 1999. That period was all about learning for me. I started my career without any capital, I am from a lower middle class, poor family so I did not have the resources to invest, I could never be an investor at that time. I was a floor trader on the Bombay Stock Exchange.

The learning part was a big memory for me. We used to spend time in the trading ring and in those days I was privileged to spend time with Rakesh Jhunjhunwala, Motilalbhai, Radhakishan Damani, Sanjay Sampat, Ramesh Damani. It was fun in those days...we used to stand in a circle and talk for hours sometimes and then go out and do some trades and a bit of value investment. We used to discuss operators. Those days, it was the time of the operators. The stocks, the ideas, the insider stories were the things which used to drive operators those days. There was no transparency in the system. It was an imperfect market, and for people who were really shrewd and wanted to make money, it was heaven.

Today markets are very different. The new generation of people may not believe how markets would function in the 90s before the electronic trading systems came into place. It was unbelievable. There was an outcry system and people used to quote two ways for hundreds of stocks and there used to be 20 to 30 percent difference in buy and sell spreads.

I don’t like gold. It has no fundamentals. I am a fundamental person. Maybe if the price comes down to Rs 5,000 per kilogram, I may have a look at it.