However, Porinju Veliyath, MD & Portfolio Manager, Equity Intelligence India says market is in a very bullish mood and it is possible for the Nifty to touch a new high in a few days. He expects Nifty to touch a five-digit number shortly.
He says, we are currently in a fabulous bull market and there is lot of action beyond the Sensex and Nifty. He does not think the Indian economy and fundamentals are co-related to global events.
Even though the market has run-up he believes there are still lot of multi-baggers.
Reliance Industries which hasn’t created wealth for investors in the last decade is now at an inflection point and is likely to give 25 percent compounded average growth (CAGR) over the next five years. He is bullish on the company’s telecom venture Reliance Jio.
From the Anil Dhirubhai Ambani Group basket he is upbeat on Reliance Capital and their defence and finance businesses.
He is bullish on Virinchi because of its diversified portfolio and infrastructure stocks such as J Kumar Infra and MBL Infra .
Below is the transcript of Porinju Veliyath, Mitesh Thacker and Ashwani Gujral’s interview to Reema Tendulkar and Prashant Nair on CNBC-TV18.
Reema: What is your sense? That mini correction that we saw, was it just a blip? Do you believe the long-term bull-trend is very much intact and what is your sense about new highs?
Veliyath: You are talking about the new highs possibility. Talking about the new high in the market, I do not think it is a very big thing. It is just that I would say it can be few days away. The market is in a very bullish mode at this point of time. Not only at this point of time, the fundamental and technical fact is the markets the outlook is very good. So, I am looking at the way when Nifty can go to 10,000 plus, when it starts quoting at five digits. That is the way I am looking at the market. And I do not think that will take a long time for Indian markets. But whatever said and done, the importance of Nifty and Sensex is really coming down amongst smart investors. In fact, if you ignore the Nifty and Sensex, I feel we are in a fabulous bull market in the last 3-4 years time. Even if you closely monitor Indian markets, many largecap companies, a lot of them have doubled in the last six months time.
And some of them have doubled in the last three months time. I am talking about large companies. For example, a stock called Jubilant Lifescience which I had discussed a month ago in CNBC-TV18, it went from Rs 300 to Rs 600 today. That is the kind of movement which is happening in even some large businesses in this country.
So, these are beyond Nifty and Sensex. The big show happening beyond Nifty and Sensex and I expect that will continue. And at the same time, Nifty and Sensex they are also going to move up significantly from these levels. Those who are talking about the valuations, they will go wrong, I am very confident.
Prashant: So, what exactly is your thesis now? You are bullish and we have discussed this many times in the past as well. You think this is uninterrupted one way move higher and I am not just talking about index. Big parts of the midcap and small cap indices as well?
Veliyath: There is no one way move. It have been seen that markets very healthily corrects very often and more than required every week. Sometimes you will see some stocks, some indices they don’t move for six months and one year. That is the way they are giving corrections. So, market’s movement is very healthy this time and not everybody is bullish. Lot of people are very cautious now, after that China slowdown and we had a big dip in the January-February. Then we had the Brexit opportunity. Maybe the market is now waiting for a Fed rate hike opportunity. All these are so called negatives but very positive for Indian market as a trigger for going up much further. So, that is the way I am looking at this because our companies earnings potentials and fundamentals are not that closely related to the global events that people are talking in a big way.
Fundamentally, as I always used to say looking at the big picture our economy is at a huge historic inflection point which is equally applicable to the listed companies, the corporate earnings in the company, So, the problem is somebody is at 20-22 price-to-earnings multiples. You will see it sobering down going forward and there is a visibility, I have no idea how the world will look like in the next five years’ time but I have some kind of clarity when I look at Indian equities and Indian economy that is some clarity going forward if you see next 2-5 years time. So, that clarity and visibility of earnings is what is making the high valuation and India deserve it.
Reema: Let us talk about a few stocks. The bull market has eluded India’s largest corporate and that is Reliance Industries. But just on Friday’s trade, -the stock hit a fresh 27-month high. Do you believe now the good times will start rolling in for RIL and you would bet on it?
Veliyath: Yes, Reliance Industries is a stock I feel, it is around Rs 3.5 lakh crore market capitalisation. This is a stock which did not create wealth in the last decade, so people are not very happy with the company. But I feel Reliance Industries is at an inflection point, it is at around 10 times price-earnings (P/E) multiple. Now I am very bullish on the telecom venture and that will start yielding big money maybe in two years time and this can be rerated. I expect Reliance Industries giving at least 25 percent compounded annual growth rate (CAGR) for the next five years time.
Prashant: Reliance Capital it has done well recently what’s a story there you like Reliance Capital as well?
Veliyath: We recently bought Reliance Capital in our portfolio management since last two months I want to disclose it first. Reliance Capital is another stock which was not in good sentiment market. Like it basically the group Anil Ambani Group was not so fancied and not in favour of the stock markets. I think again the group and this company in particular is at an inflection point.
If you see some of these microfinance companies some of the NBFCs. The way those companies have moved some of them don’t have that kind of fundamentals to justify the price, but that was a fancy. Considering that now Reliance Capital even after the move which is at around 10 price earnings multiples that looks interesting.
See Reliance whatever said and done it is a huge brand in this country and they have the potential to do business. They are into many verticals general insurance, life insurance, the NBFC activity. Now the housing finance is being separated and they can develop anything related to finance they can establish that business unlike most of the same much better than most other people in the market, because Reliance is a big brand and the group is coming out of its problems leverages kind of issues today.
Reliance Capital is I think that one focus area for the group they have already talked it in the public domain defence and finance two of the focussed areas for the group going forward. Taking that into consideration today’s market cap is around Rs 14,000 crore which is equivalent to its book value, the net worth of the company I find this is one company ignored as a finance company and I like it at this point of time.
Reema: You got a very good hold in the pharmaceutical stocks. Your previous recommendations like Biocon, Jubilant Life doubled in a span of months after you came on television and told us about it. What’s looking interesting in the pharma pack now?
Veliyath: It is true that Biocon even I didn’t expect that kind of a fast move I talked this stock in end of December for us a New Year stock albeit on CNBC at around Rs 480 but it had gone down to some Rs 430-440 levels. From there it is Rs 900 plus, so that’s a huge move of a large company. Similarly, Jubilant Life also if you see last three months it has doubled. I am seeing so many stocks potentially like that investors have to look for that, one did not really wait for somebody recommending it on a TV kind of thing. India is full of this kind of potential multi baggers even after such big rise in the midcap and small caps. See it is because structure of Indian economy it is moving on, our economy is being managed differently than the last 60-70 years. This is very important not many understand this. Our economy is already being managed and it is going to be managed entirely in a different way which is very positive for India and that will create many, many multi baggers 100s of multi baggers.
Reema: Speaking about the pharma pack in the open market you have been buying a company called Virinchi Technologies, that is a space which is getting into hospital business in south India. So, there are companies in the pharma pack that you have been betting on even now, specially some of the smaller ones. Take us through why you like Virinchi as well as anything else that you recently acquired/bought?
Veliyath: I think my name came in the bulk deal. It is a small company, Hyderabad based. It is a technology company. They have got a product called QFund which is a large player in the US market in the microfinance segment. They have their applications and software which is doing very well, that is what I understand. So, that itself is worth – today its market cap is around Rs 120-130 crore. I feel they are not into pharmaceutical business they have diversified into healthcare business, hospitals.
Now, Virinchi hospital in Hyderabad is a 358 bed hospital, it is just getting operational now and they are talking about more and more expansion and the promoters have some two other hospitals privately held with 200 beds. That is also getting merged with this company and the promoter stake is going up to around 51 percent, that is also very positive. So, I am seeing many things happening in the organisation and it looks like an inflection point from a stock picking perspective.
At Rs 120-130 crore you are getting a company with already very good numbers, more than justifiable with the current market cap and in a big way they are growing into a futuristic business and hospital business in India there may be some pockets, some cities which are overcrowded with hospitals. But generally speaking India is still in shortage of hospital beds, so that is where a lot of money can be made by investors.
Prashant: We discussed your infrastructure ideas, your infrastructure stocks before. Very quickly, anything you would like to place before our viewers. Anything you like, an idea or two?
Veliyath: Recently, I want to just discuss two instances. I was surprised the way market irrationally reacts to some silly news. This happened in J Kumar Infraprojects. The stock was trading at around Rs 220 kind of levels. It went down to Rs 105 in no time. On some political allegation or they were banned by BMC kind of thing which was already there in the domain. So, when a political party made an allegation, the stock price from Rs 220, it went to Rs 105 in a few days. And the same stock has come up, now it is around Rs 175-178 it has moved up from Rs 105 to Rs 178 in another few days. This is the kind of volatility which is basically huge opportunities for smart investors to pick stocks.
So, infrastructure another stock was MBL Infrastructures. They had a pledge issue, some finance minister from the pledge, they sold off the shares in the market. So, from Rs 120, MBL went down to Rs 62 in a few days and today it is Rs 111 back. Back to square one in another few days. These are big companies and J Kumar is a very strong balance sheet company and with a huge execution capabilities, now their order book is going up in a big way. They have got the big order from the mumbai metro. So, I am basically very bullish on the sector. Again, as I told earlier, stock picking is a big challenge, but when some kind of bad news, investors should take the advantage of the opportunity.
There are many such things maybe further in the offing because if you see in the last few decades, these companies always, they had a responsibility to manage the politicians by bribing. That was India’s norm of infrastructure. Without bribing, you would not have got any orders. Maybe Larsen and Toubro, there could be two, few companies which are differently being run. But otherwise, it was a norm in the Indian market. So, these are not a very big news. Somebody bribed and then he was caught later. It is okay. So, these things you have to live with, but things are changing for the future. In the future these infrastructure companies will be run very professionally.
The government involvement will come down, there will be more transparency and the arbitrage thing which I talked, one year ago which has recently started being in the public, the benefit of these companies. There is no five year, ten year arbitrage kind of cases going on. They will get settled in one year time. These are very positive things happening in the infrastructure industry and unprecedented potential orders going to come from railways, from roads and from other infrastructure, everywhere, from the national waterways. I am telling this is a huge opportunity market is not really looking at. Market is looking for numbers. And by the time numbers start coming in, the smart investors make their money five times and 10 times. That always happens. So, this is an inflection point for infrastructure companies, but be very selective.
Prashant: What did you make of the market overall and just run us through your trades for the coming week as well?
Gujral: Basically, the market is just chopping around and today the Bank Nifty came off, tomorrow it can easily rally both these thing would mean nothing. As far as whenever the event is out of the way chances are that no rate hike is discounted, so maybe no rate hike will not impact the market, if there is a rate hike then probably you could have a kneejerk like Brexit and that would lead to a rally. In fact, that would be the ideal situation, but overall next 2-3 days are going to be choppy 8,700-8,900 that sort of band could continue.
Reema: What would be your trading recommendations be for the coming week?
Thacker: I have one buy and two sell calls. The buy is on Cipla which has made a fresh weekly closing high continues to show signs of uptrend buy now with the stop at Rs 580 for targets of Rs 615 and Tata Steel which is broken below key pivot levels Rs 360-365 I think I would sell that with a stop at Rs 370 for targets of Rs 340 and one more sell call in form of Reliance Communication that a sell with a stop at Rs 50.50 for targets of around Rs 43.
Prashant: What are your trades?
Gujral: I use this show to give some longer ideas I think Reliance Capital is showing some sort of longer term bullishness now and this can be bought with a target of a few months about Rs 800. Similarly, Reliance Infra as well if you buy now and hold it for a few months probably Rs 850 is the target and Reliance based on today’s movement if this continues I think in the next few months you could be closer to Rs 1,200 on Reliance.