Opportunistic investment behaviour
Porinju Veliyath is known to be an opportunistic investor. He has no rigid notions of what is good and what is bad. Instead, he goes wherever there is a chance to pocket a few bucks.
In January 2015, Porinju had mocked investors seeking to invest in blue-chip large-cap stocks on the basis that “Buying a famous ‘performed’ blue chip stock, with great management, clean BS and excellent growth business, doesn’t need any skill.”
Buying a famous ‘performed’ blue chip stock, with great management, clean BS and excellent growth business, doesn’t need any skill.
— Porinju Veliyath (@porinju) January 5, 2015
Porinju followed it up by advising investors to “Look For Small Cos, Penny Stocks, Unproven Mgmt For Bumper Gains”.
At that time, Porinju’s advice had created a furore. His advice to back unknown penny and micro-cap stocks with alleged dubious standards of corporate governance was seen as blasphemy by many investors.
@porinju but one is not in stock market to show skills but to make money while minimising risks!
— Kamlesh (@Kamlesh_Samaria) January 5, 2015
— Arun Mukherjee (@Arunstockguru) January 6, 2015
Porinju defended himself vigorously and gave cogent reasons for his advice. He also proved his mettle by disclosing that he had picked stocks like Kitex Garments, Geojit, KRBL, Orient Cement, Shreyas Shipping etc which were then unknown micro-caps but later became glorious multibagger stocks.
Don’t trust the 'experts' advising you, ’never buy penny stocks & bad companies’ – many of them are Industry leaders: pic.twitter.com/9UqMOjZz3R
— Porinju Veliyath (@porinju) August 5, 2015
Surge in AUM of PMS
As a direct consequence of Porinju’s success in the stock market and his popularity amongst investors, the AUM of Equity Intelligence, his PMS, has been surging by leaps and bounds.
As of 31st August 2015, Equity Intelligence had an AUM of Rs. 300.67 crore and 537 clients.
As of 31st August 2016, the AUM has surged to Rs. 579.06 crore while the number of clients has soared to 945.
Change in strategy dictated by AUM size?
It is common sense that there is a limit to how much one can invest in micro-cap stocks. The small market capitalisation coupled with low liquidity means that even a small buy order will send the stock surging into upper circuit. Vice versa, even a small sell order will lock the stock in lower circuit.
Also, if one wants to have a reasonably focused portfolio of say, twenty stocks, one has to perforce invest in stocks with large market capitalisation.
It is possible that the change in Porinju’s strategy of recommending a buy of blue-chip mid-cap stocks like Tata Global Beverages, Indian Hotels, Biocon etc may be dictated by the fact that the fund size is too large for micro and ultra micro-cap stocks.
Latest stock recommendations of Porinju Veliyath
Now, the wheel has come a full circle because Porinju has taken a fancy for ultra mega-cap blue-chip stocks.
Buy Reliance Industries for 25% CAGR gain over five years
Reliance Industries, the ultra mega cap with a market capitalisation of Rs 3.5 lakh crore, which is promoted by Billionaire Mukesh Ambani, is notorious for having disappointed investors.
Over the past 10 years, the stock has lost 5.77%. Over the past five years, the return is only 29.88%, which works out to a simple average return of less than 6% per annum.
Porinju Veliyath has recommended a buy of Reliance Industries on the basis that it is now at an “inflection” point.
He said that he is “very bullish” about the Jio telecom venture and assured that it will start yielding “big money” over the next couple of years.
Porinju emphasized that Reliance Industries is quoting at reasonable valuations of 10 times price-earnings (P/E) multiple and that it will get re-rated if the Telecom venture succeeds.
He added that he expects Reliance Industries to give “at least 25 percent compounded annual growth rate (CAGR) for the next five years time”.
Buy Reliance Capital as it will prosper in the NBFC boom
Reliance Capital, the NBFC promoted by Billionaire Anil Ambani, is Porinju’s second stock recommendation.
Reliance Capital has a market capitalisation of about Rs. 14,000 crore. It has also sorely disappointed investors with a pathetic 10-year return of 3% and a 5-year return of 37%. The stock has shown some signs of life in the recent past with a YoY return of 63%.
Porinju disclosed that he has recently bought Reliance Capital for his PMS though he did not disclose the number of shares or the price paid.
He explained that Reliance Capital is also at an “inflection point” owing to the fact that it is quoting at a P/E of 10x and a P/BV of about 1x, which is very reasonable.
Porinju emphasized that Reliance Capital is a huge brand in India and has the potential to do big business. He also pointed out that Reliance Capital is already into many verticals such as general insurance, life insurance, NBFC, housing finance etc, all of which have great scope for growth.
But love for micro-caps is still present
Porinju’s recently developed affection for large-cap blue-chip stocks does not mean that his love for micro-caps with alleged dubious standards of corporate governance has diminished.
Instead, Porinju has recommended a buy of three micro-cap stocks:
Virinchi Technologies – futuristic hospital business
Porinju’s appetite for Pharma and healthcare stocks has been whetted by the success that he enjoyed in Biocon and Jubilant Life Sciences. Porinju bought both stocks when they were languishing at distressed valuations and pocketed multibagger gains from both.
Virinchi Technologies, a micro-cap with a market capitalisation of Rs. 130 crore is Porinju’s latest stock pick. He bought a chunk of 101,000 shares at Rs. 59.65 each on 31st August 2016.
Porinju explained that Virinchi is a technology company with a product called QFund which is a used extensively in the US market in the microfinance segment. He emphasized that Virinchi has diversified into the healthcare business and has also set up a 358 bed hospital in Hyderabad. He added that there are many things happening in Virinchi and it looks like it is at an inflection point from a stock picking perspective.
He also emphasized that Virinchi’s valuations of Rs 120-130 crore is more than justifiable given that it is growing in a big way into a futuristic hospital business in India. India is still in a shortage of hospital beds and so a lot of money can be made by investors, he added.
J Kumar Infraprojects
Porinju recommended a buy of J Kumar Infraprojects on the basis that the markets had reacted irrationally to “some silly news”. He explained that J Kumar Infraprojects sunk from Rs 220 to Rs 105 in no time owing to political allegations that the Company has been banned by the BMC for alleged irregularities. The stock recovered swiftly and surged to Rs 175-178.
Porinju emphasized that this kind of volatility provides huge opportunities for smart investors to pick stocks. If they buy at the bottom of the bad news, they can pocket huge gains.
Porinju recommended MBL Infrastructures as another example of buying a stock when it suddenly slumps owing to bad news. He explained that the invocation of a pledge caused the stock to sink from Rs 120 to Rs 62 in just a few days though it recovered swiftly to come back to Rs 111.
Porinju added that MBL Infrastructures and J Kumar are big companies with very strong balance sheets and huge execution capabilities and that their order books are going up in a big way.
Take advantage of bad news to buy stocks at distressed valuations
Porinju appears to have mastered the art of buying stocks when they crash in the wake of bad news. We saw an example of this in April 2016 when Ashoka Buildcon crashed on news that it was in deep trouble for bribing politicians to secure orders.
Porinju recommended a buy when Ashoka Buildcon hit a bottom and raked in quick-fire gains when it recovered.
Wow…Ashoka | 114 – down 40% in 2 days for bribing politicians? No project was executed without bribing filthy politicians till recently!
— Porinju Veliyath (@porinju) April 7, 2016
— Porinju Veliyath (@porinju) April 11, 2016
Porinju reiterated the advice that when stocks collapse due to any bad news, investors should take the advantage of the opportunity.
J Kumar up 50% in 7 days and counting, zero change in fundamentals! Irrational traders boon for rational investors!https://t.co/OZqRJbN4F6
— Porinju Veliyath (@porinju) August 26, 2016
Bribing is normal in India; so don’t worry about companies getting caught for corruption
Porinju pointed out that infra companies had/ have a responsibility to manage politicians by bribing. He said that this was/ is India’s norm of infrastructure. Without bribing, one would not have got any orders.
So, bribery was/ is a norm in the Indian market and it is not very big news, he said.
“Somebody bribed and then he was caught later. It is okay. So, these things you have to live with” Porinju advised.
Buy a stock during Income Tax raid & sell it when they are given a clean chit – that's value investing!https://t.co/ivCfALZKHx
— Porinju Veliyath (@porinju) April 11, 2016
He, however, expressed confidence that things would change in the future and that the infrastructure companies would be run very professionally. He also assured that government involvement would come down and that there will be more transparency.
Courting controversy by advising to buy alleged dubious companies
Predictably, Porinju’s recommendation that investors buy troubled stocks like JK Infra and MBL Infra aroused the ire of other expert investors.
Siddharth Oberoi, the founder of Prudent Equity, a stock recommendation service, was not impressed by Porinju’s advice as he made clear in a testy tweet:
Bull market at its best- Some investors finding value in shady companies like J Kumar & MBL Infra. Corporate Governance takes a back seat.
— Siddharth Oberoi (@SiddharthOberoi) September 17, 2016
Porinju Veliyath has straddled both ends of the spectrum by recommending in the same breath ultra mega-cap stocks of blue-chip credentials and also micro-cap stocks of alleged dubious credentials. Time will tell whether he will have the last laugh this time as well!