Pro-active mind of Porinju Veliyath sees money-making opportunities
It cannot be doubted that Porinju has a razor-sharp mind which can take advantage of opportunities which others cannot see.
One example of this is when the Government amended the GST law on Hotels and reduced the tax rate.
Porinju was amongst the few who realized that this amendment would prove to be the catalyst which would send all hotel stocks surging like rockets.
3&4 Star hotel operators are in a sweet spot. F&B at 5% GST. Room rates are mostly below Rs.7500 (18% GST). Margins to go up. Advantage at the expense of 5 Stars. Few listed companies in the space look attractive. Am I missing something?
— Porinju Veliyath (@porinju) November 10, 2017
This was corroborated by Ashish Chugh of Hidden Gems fame.
Industry has seen a down cycle followed by multi year consolidation – leading to a a leaner structure & cost rationalisation. Case of operating leverage with higher occupancy. https://t.co/4pjbmrkSOW
— Ashish Chugh (@hiddengemsindia) November 11, 2017
At this stage, I have to compliment myself because despite my stature as a novice, I boldly predicted that Royal Orchid Hotels is the best buy in the hotel space owing to its high promoter holding, asset-light business model, debt-free status and other virtues.
I was right because Royal Orchid Hotels is up a handsome 100%+ on a YoY basis.
Other hotel stocks have also notched up impressive gains.
According to eminent experts, more bucks are due from high-quality hotel stocks such as EIH, Indian Hotels, ROHL, Oriental Hotels etc (see research reports).
SEBI’s re-classification norms will disrupt Rs. 23 Trillion Mutual Fund Industry
The second example of Porinju’s active mind is with regard to the Mutual Fund reclassification norms issued by SEBI.
He has spotted an opportunity which will emerge from the regulations.
When a Rs 23 trillion industry changes rules of the game, you need to take notice and rejig your portfolio. @kayezad writes this must read story. @livemint https://t.co/ZfFtI9dgGA
— Monika Halan (@monikahalan) May 1, 2018
The mechanics of the SEBI norms are cogently explained by Kayezad E. Adajania of Mint.
Apparently, SEBI has directed that all mutual funds have to re-classify their schemes as per prescribed categories and make investments only as per their category.
The bottomline of the directive, as far as I can make out, is that large-cap funds will no longer be able to poach for stocks from the mid-cap and small-cap space.
“Until now, large-cap funds have been investing in 100-200 largest companies by market capitalisation. Many such funds also invest in mid- and small-cap securities to get an extra kicker in returns. That has changed,” Kayezad E. Adajania has stated.
In fact, 26 large-cap funds are stated to have invested more than 20% (on an average) each in shares of small- and mid-sized companies in 2012. By 2017-end, 12 out of 62 funds invested at least 20% each in such companies.
Get ready for tsunami of selling by large-cap mutual funds
It is obvious that large-cap mutual funds, which are holding massive chunks of high-quality mid and small-cap stocks, will have no option but to dump the stocks in the market so as not to fall foul of the SEBI regulations.
This will send stock prices plummeting and give us the golden opportunity to tuck into them at rock-bottom prices.
Porinju opined thus:
Over 300 mid & small-cap stocks are in selling list by MFs as part of their restructuring, partly to comply with SEBI reclassification norms – an opportunity for value-picking but need to be extremely selective!
— Porinju Veliyath (@porinju) April 30, 2018
Which stocks are on the hit list of mutual funds?
This is obviously top-secret information which Porinju is not willing to divulge to free-loaders like you and me.
However, there is no reason for despair because I have conducted rudimentary research into the issue.
According to IIFL, the following are the small-cap stocks that Mutual Funds bought aggressively in November 2017.
| Company Name | Nov-2017 (Rs Cr.) | Oct-2017(Rs Cr.) | Absolute Change (Rs Cr.) | |
| 1 | Kalpataru Power Transmission Ltd. | 313.6 | 245.2 | 68.4 |
| 2 | Seya Industries Ltd. | 152.9 | 98.9 | 54.0 |
| 3 | ITD Cementation India Ltd. | 107.6 | 56.7 | 50.9 |
| 4 | Zydus Wellness Ltd. | 102.2 | 51.2 | 50.9 |
| 5 | Vijaya Bank | 75.1 | 24.3 | 50.8 |
| 6 | Camlin Fine Sciences Ltd. | 49.7 | 4.3 | 45.4 |
| 7 | Eveready Industries (India) Ltd. | 194.5 | 150.5 | 44.0 |
| 8 | Apex Frozen Foods Ltd. | 109.8 | 69.9 | 39.9 |
| 9 | Techno Electric & Engineering Company Ltd. | 172.9 | 134.2 | 38.8 |
| 10 | VIP Industries Ltd. | 194.5 | 157.5 | 37.0 |
Similarly, ET has a report about the seven small-cap stocks where top Mutual Fund schemes are chasing big money.
These seven small-cap stocks are the following:
(i) Repco Home Finance:
A total of 15 fund houses have Rs 1,168 crore exposure to this smallcap stock.
The NBFC has a weightage anywhere between 0.02 per cent and 6.94 per cent in as many as 100 mutual fund schemes.
Birla Sunlife AMC has this stock in 28 of its schemes, with Rs 214 crore worth of investment.
The stock constituted 2.17 per cent to 6.94 per cent of weightage in the fund house’s various schemes as of August 31.
SBI Funds Management (29 schemes), Franklin Templeton Asset Management (3 schemes) and DSP BlackRock Investment Managers has Rs 170 crore to Rs 257 crore worth of exposure to this stock.
(ii) FAG Bearings:
FAG Bearings is being tracked by 23 mutual fund houses.
Franklin Templeton Asset Management (India), IDFC Asset Management, SBI Funds Management, HDFC Asset Management and Sundaram Asset Management together had Rs 1,044 crore worth of exposure to FAG Bearings.
Overall, 84 MF schemes held Rs 1,772 crore worth of FAG Bearings shares.
(iii) Sanofi India:
A total of 79 schemes are invested in this MNC pharma stock. Big mutual fund houses such as Reliance Nippon Life Asset Management (Rs 305 crore in 2 schemes), UTI Asset Management Company (Rs 250 crore in 9 schemes) Birla Sunlife Asset Management Company (215 crore in 23 schemes) and Franklin Templeton Asset Management (India) Private Limited (Rs 121 crore in 3 schemes) have significant holdings of the maker of Combiflam and Avil.
The weightage of this stock in these schemes is anywhere between 1 per cent and 9 per cent.
(iv) Equitas Holdings:
A total of 102 MF schemes from 15 fund houses had Rs 1,613 crore investment in the stock.
Franklin Templeton Asset Management (India), SBI Funds Management, Birla Sunlife Asset Management, UTI Asset Management and Kotak Mahindra Asset Management together held Rs 1,414 crore worth of shares in the microfinance company as of August 31.
The stock had up to 5.7 per cent weightage in the schemes of the aforementioned MFs.
(v) Sadbhav Engineering:
Seventy-one mutual fund schemes have a total of Rs 1,266 crore exposure to this smallcap stock. HDFC Asset Management (Rs 415 crore in 12 schemes), ICICI Prudential Asset Management (Rs 288 crore in 3 schemes), SBI Funds Management (Rs 180.37 crore in 6 schemes), Tata Asset Management (Rs 180 crore in 18 schemes) and DSP BlackRock Investment Managers (Rs 102 crore in 2 schemes) are heavily invested in this stock.
(vi) Wabco India:
This auto component company is expected to gain from a recovery in the commercial vehicle cycle.
Experts believe the company has good growth potential from technologies like ABS and AMT and has strong parentage which provides good possibility for export growth and strong aftermarket potential.
A total of 62 schemes of 19 MFs held Rs 931 crore worth of WABCO IndiaNSE 0.07 % shares as of August 31.
Axis Asset Management, Sundaram Asset Management, Birla Sunlife Asset Management, Tata Asset Management and L&T Investment Management together held Rs 590 crore worth of Wabco India shares at August end.
(vii) KEC International:
Fifteen big mutual fund houses such as HDFC Asset Management, Reliance Nippon Life Asset Management, SBI Funds Management and UTI Asset Management have stakes in the company. These stakes were worth over Rs 806 crore as of August 31.
KEC International is among ICICI Securities’ top picks in the capital goods space.
It is obvious that at least some of these stocks will face selling pressure in the near future.
Conclusion
In the past, we have been oblivious to money making opportunities and have lost out on colossal fortunes which were handed over on a platter. This time, we have to maintain red alert and ensure that we do not squander away the opportunity!
MFs may have already reduced their holding in mid and small cap in order to realign their portfolios as per SEBI mandate by now in the current rally.
I dont understand inspite of porinju claiming himself genius with stock picking results aren’t showing in his pms which is down by half.
what is the timeline within which the guideline has to be complied by MFs ?..not sure if SEBI will have a short window and let the names take a hit…
This news is too late. this has already happened starting from large caps to small caps few months itself..Many smart investors have found the opportunities in this rejig.
This may be a reality as Mid cap index is down by 1.5% and small cap index by 1.2% today, whereas Nifty is stable. Only question is that when the re-balance of portfolio is happening within the same fund houses, why the stocks to be sold in the market where only small investors will be hurt more.
It is typical of RJ blogpage to report matters with a delay – asking investors to invest further, but not advising them that they could exercise exits at higher prices. If this SEBI directive came a few months ago, then why did the respected author of this post warn the investors about Small and Mid caps tsunami sale at that time?
BTW, mutual funds are not fools. They have Small and mid cap funds also. They could easily market them to MF investors and reallign their PFs without going to market (through off-market deals, from one fund to another) if they feel those companies are good. why would they wish to suffer a market based loss in such ‘tsunami’? Right?
@gem23,,,even I thought that such a transfer amidst funds within the same AMC is feasible but the only constraint can be the liquidity (I mean cash) in the hands of the small and midcap funds. they should have cash to absorb such a big number from large cap funds
Porinju is always talked as great adviser on this blog and he too keeps posted on twitter when his recommended share reaches new high (like tata global, godrej prop, reliance), etc,
But he never advise investors what to do with Allcargo and many recommendations which are making new lows every day and many small investors had taken position after listening him on different channels.
I agree. In fact RJ should give a balanced and thoroughly researched note and view on all the issues being covered rather than giving a hyped picture of the point/topic which often lead/mislead other investors.
He always buy bulk/block deal but never sell through bulk/block.
That is solely for his personal portfolio…his pms investors are deeply hit
what stops MF to rejig within their own funds.
trade among their own schemes, no need to panic !