Stock picking is name of the game; ongoing correction in midcaps healthy: Porinju Veliyath

In an interview with ET Now, Porinju Veliyath, Equity Intelligence India, talks about the ongoing correction in mid and smallcap stocks. The experts also talks about how investors should position themselves at this juncture. Excerpts:

ET Now: The eternal bull that you are… What is it that you are making of the selloff which is taking place the across emerging market (EM) space? Is this the right opportunity to buy stocks or do you think the market is going to drift even further lower?
Porinju Veliyath: The world is going through tough times, uncertainties like never before. Sometimes it is very fearful that investors cannot make decisions. The world is going through challenges when it comes to doing business or investing. In the context, India seems to be in a better position. But it is a bit unfortunate many of the much aspired reforms are not really going through and investors are a bit concerned about it.

That is why we keep on witnessing lot of tweets and remarks about our legislatives; the opposition is a big concern for the investing community in India. At the same time, as I said, India is in an advantageous position both structurally and fundamentally. That is something that investors should bear in mind. It is not the time to go bearish on markets for whatever reasons. So I am bullish on the market, but stock picking is the name of the game. The year 2016, the next year is going to be very good for Indian investors.

ET Now: If I look at the market setup, the basic optimism is coming from the fact that Indian economy will heal and make a strong comeback. Now the assumption that earnings recovery and corporate cycle recovery will kick in is broad-based. You should buy into cyclical; you should buy into financial sector, which will participate when the recovery happens. But if I look at the market setup, L&T is at a 52-week low, Axis Bank onn Thusday touched a 52-week low; BHEL too is at a multi-year low. Do you think that somewhere the market positioning is very different? We all expect the economy should recover, but markets currently are not rewarding or associating with economic-related stocks?

Porinju Veliyath: I appreciate that question. This is exactly in line with what I have been saying in the last one year. It is not the well-known blue chips and FII-fancied stocks, what investors do not know is the fact that hundreds of mid and smallcap stocks have gone up by 50-100 per cent in the past one year; some of them have even jumped 500 per cent during the same period. I have been communicating this to investors through various TV channels that the Nifty50 or the frontline stocks are not going to be in favour perhaps for the next many years.

They have been grappling with their own challenges. But at the same time, this is the time to send a warning short to small and midcap investors as when some crazy moment happens, hundreds of such stocks take part and many in fact move up beyond imagination. So in the last two-three days if you notice, there is a significant correction.

I have to tell you my portfolio management was down by 4 per cent on Thursday not because I am holding stocks which are of no value, but generally a depression has come in midcap and smallcap pockets. It happens if there is a big selloff or leveraged positions are being sold off by financiers.

So that kind of a thing can happen in the market and it rectifies. In that context, I feel the ongoing correction in mid and smallcaps is healthy in nature. Never compromise on valuations. That is the key for investing in the market. The correction in the frontline stocks that has been happening for the last one year too is healthy correction, in tune with the fundamentals of those companies.

ET Now: Are you using this correction to deploy more funds into the companies that you already own or are you looking for bargains in newer areas?

Porinju Veliyath: I am very comfortable holding on to the stocks we are holding today. I am a portfolio manager, whose stocks are all known in the country. Everybody can access that. We do not find anything wrong about it. I am very proud that thousands of people have been benefiting out of the value investing philosophy.

So the kind of stocks that I have been always liked is TCI or FCEL. FCEL was hovering around its high-time high on Thursday. HSIL and NIIT were doing well. So these stocks are well-known and we have been holding these stocks in our portfolio with a long-time view. We are even buying stocks for the newer clients. Now there was a lot of hype about GST and GST is a very important legislation for the country.

But it is not happening or there is an uncertainty regarding its passage. Now at this point of time, I would like to mention something normally that we are not supposed to talk politics on the business channels does not make any sense. But today I am telling you that the investing community, activity in the equities is quite a bit connected to the politics today. We all use the word patriotism.