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Focus On Micro, Not Macro, Porinju Veliyath Says Amid Global Market Sell-Off 

“This is a normal correction and we’ve seen it so many times,” Porinju Veliyath said. 

Pedestrians walk past the Bombay Stock Exchange (BSE) building in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)
Pedestrians walk past the Bombay Stock Exchange (BSE) building in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Well-known portfolio manager Porinju Veliyath wants investors to focus more on microeconomic fundamentals and not global macroeconomic developments.

The Dow Jones Industrial Average tumbled as much as 1,600 points on Monday -- its biggest intraday decline ever. That left markets across the globe jittery. The benchmark NSE Nifty 50 Index and the S&P BSE Sensex fell for the sixth straight day today, down more than 8 percent from their January highs.

“This is a normal correction and we’ve seen it so many times,” Veliyath said. 

He advised investors against selling their equity investments. He said global macroeconomic developments—such as a rising U.S. inflation and the Federal Reserve winding down its balance sheet—won’t have a lasting impact.

India’s micro fundamentals are very strong and healthy and a bounce-back may be just around the corner, he said. Veliyath expects the Indian economy to grow close to 8-9 percent in the coming years if it is well managed. “I am seeing India entering into a new growth orbit, not just with the GDP but also with investments.”

That will be aided by an unprecedented push for better corporate governance and transparency to take care of minority shareholders, he said.

For the Indian investor community, this is a golden opportunity, he said. “The micros are going to play better for the corporate earnings going forward.” Investors should “stay sober” and refrain from panicking, he reiterated.

Here are edited excerpts from the conversation.

Is this the turning of the tide, or is it a blip?

It is a normal correction and we have seen these many times -- during Brexit, and then the Greece default. People were selling off for Trump winning, Gujarat elections. This is quite normal. It is mostly that people are speculating in the market. There are very few investors in India and we have just started changing that.

More and more domestic savings are coming into the market in the last one year. There has been some excesses built because of over trading or more leveraged trading or I will say complacency in the market. I am extremely comfortable about what’s going on. There is one more sell-off today. I think we should be around the bottom. I had a same feeling yesterday. I think investors should stay sober, don’t get carried away with the noise or the panic. There were many panics which happened in last 5 years. Despite all those panics and sell-offs, people created huge wealth. In our case, we have made a 45.2 percent CAGR in the last 5 years despite having many such sells-offs and panic in the market. So, this is just another panic and an opportunity for investors.

If foreign investor participation changes and the domestic flows is not as robust, can the fall get exaggerated? Can this blip extend itself from where it is right now?

It will not happen. At the peak of every panic, people give such kind of rationale. We are going to have a good time for investors in India. In fact, the mid caps and small caps have corrected much more in January and February. So, it is difficult to predict about the Nifty. Even foreign investors are panicking, so it can move beyond what we expect.

But for the investing community, it is a golden opportunity in India. We are going to have both technical and fundamental aspects in our favour and that is the big picture. Technical aspects are in terms of money flow in the capital market. And the fundamental aspect is the higher growth in our GDP on QoQ for next 5-7 quarters, I am very optimistic about it. Because India has set a stage for takeoff of the economy. I am very confident.

U.S. inflation is rising, interest rates may rise faster, and the Fed is winding down its balance sheet. So, that has to have an impact on emerging market flows.

No, this is only applicable only for MBA students. Investors have created huge wealth. I am aware of all these aspects. For the investing community, don’t scare them with all these.

There are many such occasions in the last 5 years itself where these kind of turns have happened. There were deep end panics which we call corrections. We understand the macroeconomic scenario, globally or in India.

Here, you are buying ownership in some of India’s companies. In the given economic environment, globally or in India, are these companies going to create wealth for 5-10 years? How relevant are their businesses going forward? Can they grow at 15-25 percent? In a country where there are 1300 million people, they want to have their food, clothes. There is a huge consensus story emerging in India. Our economy is poised to grow 8-9 percent in the coming years if it is well managed.

There are symptoms. The politicians in the last 2 years they have been managing the economy in a different manner with a long-term vision. So, we have set a stage for a higher economic growth and I am very optimistic about it. I am seeing India entering a new era, new growth orbit, not only as an economy but also in investing. See what is happening in the Indian companies, especially in the mid-cap and small-cap companies. There is an unprecedented change happening in corporate governance. After demonetisation, GST and many other actions and reforms by the government to bring down black money and bring down corruption in the country. This can be very effective going forward.

Did your investment strategy, for the short to medium term, adapt to the changing macro across the world?

I agree that the macros are changing, especially with regards to India. We had a sweet spot for a couple of years when crude prices where going down. We had many macroeconomic factors in our favour. We are no more in that sweet spot. Crude prices and interest rates are moving up. Despite all these, we can not say that this is the world which we are living in, so sell off everything. It doesn’t happen. The micros start playing in. In next few quarters, you will see a very impressive growth in India.

We have a low base as we had many challenges while implementing reforms. So, we had stress in some pockets of the economy and many companies had problems, they could not work normally because of GST. There is still a lot of confusion and farmers suffered. All these are there. But the micros are going to play better for corporate earnings.

Have you been getting panic calls from clients over the last 24 hours?

Yesterday evening I had sent a letter to all my investors after seeing the U.S. panic. So, a lot of people are committing more funds to PMS. I expect at least 30-35 people adding funds to our PMS. I only saw one client withdraw two days ago. Otherwise, I don’t see any withdrawal or panic in the system. My old clients have seen this. When I say 45.2 percent CAGR for 5 years, and for one month they are falling by 3.1 percent in January, in fact, Sensex and Nifty were gainers in January. So, we have underperformed. Such pockets of underperformance happen in value investing but that doesn’t mean you can sell off everything for a 5-10 percent fall. It is not value investing.

Indian household savings have just started coming into equities.
It is only the tip of the iceberg which we saw last year. We will see an unbelievable amount of flows into Indian markets. Market is very healthy today and there is no bubble. Especially after this correction, it is a fantastic place to be in. Despite LTCG or any negatives, equity is still the most tax efficient and attractive investment in India for investments.