Vijay Kedia explains the merits of his latest small-cap stock pick

Discussion in 'Must-Read Interviews, Articles & News Items' started by Arjun, Jan 5, 2021.

  1. Arjun

    Arjun Chief Executive Officer (CEO) Staff Member

    Mar 19, 2015
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    Markets are euphoric but we have to stay invested

    Vijay Kedia pointed out that the market is really euphoric. However, this is not that the first time we are seeing this euphoria, he said.

    "In my career of 25-30 years, I have seen many instances of euphoria in the market and that is part of the game," he said.

    "The only thing is when the weather is windy, then you have to take care of your cap," he added with his typical earthy wisdom.

    He also explained that investors should try to invest in "all-weather stocks", which will thrive irrespective of euphoria or gloom.

    He advised that for long-term investors, the best strategy is to remain invested though they have to watch their back and be careful.

    "Careful is a word which always flows with every investor in the market but that is a part of the game," he said.

    Always be careful and fearful

    Vijay Kedia cautioned investors, especially youngsters, not to be carried away and be reckless daredevils.

    "I am careful and fearful all the time. When you are investing in the market, you do not know what is going to happen tomorrow, like we never predicted what is going to happen in March and we never knew also that there would be this V-shaped rally," he said.

    "New investors who are joining the party now should be fearful as the market is not cheap," he added.

    Being careful does not mean not being fully invested

    Vijay Kedia explained that the fact that he is fearful and careful does not mean that he is not fully invested.

    "Suppose Titan gets a feeling that gold prices are going to crash $500 from here, do you think Titan will sell its stores or will they sell all its gold in the stores? No, they will continue to do their business, whether gold price falls $500 or it goes up $500. They will try to balance their risk to be in the game. This is what I am also trying to do. I am trying to invest in all-weather stocks," he explained.

    Holdings in Sudarshan Chemicals and Timken reduced

    Kedia disclosed that he is changing his portfolio a little bit and investing into tech stocks and product-based technology companies. It may be from IT or from telecom or from whichever area the product based technology has come.

    "I am balancing my portfolio and selling some old stocks and investing into these new tech stocks," he said.

    He revealed that he has reduced his holding a bit in Sudarshan Chemicals and Timken.

    Tejas Networks, latest investment

    Kedia disclosed that his latest stock pick is a small-cap named Tejas Network which has a market capitalisation of Rs 1300 crore.

    He explained that Tejas is one of the few companies in India to spends 10% of its revenue every year in R&D.

    "What made me invest in this company is that 10% of R&D spent is year on year and so far they have invested more than Rs 1,000 crore in their R&D. In June or July. the stock was available at a market cap of Rs 400-500 crore and the company has Rs 300 crore cash in the bank and they have developed a product. It takes time to develop a product if you have to compete with Nokia or Ericsson or Huawei, which is what Tejas is doing," he stated.

    He also pointed out that Tejas has good technical knowledge and are competing with all Fortune 500, Fortune 50 companies in the world.

    "Because of their atmanirbhar theme, I think their time has come and that is why I have bought the shares," he added.

    He, however, cautioned that he is not recommending a buy of the stock.

    "I bought at Rs 45-50 up to Rs 60. I cannot say at Rs 110 or Rs 120 or Rs 130, go and buy Tejas. Please do your homework," he warned.

    Vaibhav Global is a marquee investment in the portfolio

    Kedia humbly did not claim credit for the multibagger returns from Vaibhav Global.

    "I am not a visionary. I cannot see what is happening one kilometre ahead from where I am. I can see maybe 10 meters or 15 meters with a torch and so when I move forward to see 20 meters or 30 meters or 10 meters, then I get to see 10 meters further," he said with utmost humility.

    "When I bought the Vaibhav Global shares, their sales were around Rs 1,000 crore and the nearest competitor, QVC, had sales of around Rs 80,000 crore. It fit into my principle that you try to hunt fish in the ocean, not a crocodile in the pond. I thought the market opportunity is huge and promoters must have learnt a lot of lesson from their falls in the past and luckily it is working," he explained.

    SMILE formula works well

    It is a fact that the stocks in Vijay Kedia's portfolio, such as Sudarshan Chemical, Vaibhav Global, Atul Auto etc are not front league stocks and are not widely tracked by brokerages.

    He explained that he prefers to invest in unknown stocks which have the potential to become multibaggers, using the SMILE formula.

    "I am simply applying my SMILE formula which is small in size, medium in experience, large in aspiration and extra large market potential," he said.

    "It is an advantage to me when the stock is not popular and nobody knows about it. So whenever I invest and if I talk to people my friends, they do not believe what this company is doing and what are they into. Then they search and say aarey yeh toh bakwas hai, aarey yeh to chor hai, aarey yeh to yeh hai aur woh hai (It is all rubbish). The same pattern is happening here and I am using that pattern to my advantage," he added with a smile on his face.

    I cannot understand Blue-Chip stocks like Larsen & Toubro

    Kedia explained that the chances of multiplying your money in an unpopular stock is immense. You can get your quantity up to whatever appetite you have, So you can get the shares and get them cheap and according to my limited wisdom, they are easy to understand.

    "I cannot understand a company like Larsen & Toubro," he said bluntly.

    "That is the reason I am investing in all these unpopular, untouched stocks and, of course, I am taking a risk. There is a great risk and so I am not recommending, I am not telling everybody that you go and invest in such companies because this could be fatal. It is very risky but lakin abhi kya kare, apne ko toh risk se ishq hai (I can’t help it, I’m in love with risk)," he added, evoking laughter from the distinguished audience.