Porinju Veliyath’s Daredevil Prediction Yields Mega Gains

Daredevil prediction that realty stocks will give 200% more gains than Nifty

In September 2015, Porinju was confidence personified when he declared that “A well-picked Real Estate Stocks Portfolio should give over 200% return than NIFTY in 1-2 years”

A well-picked Real Estate Stocks Portfolio should give over 200% return than NIFTY in 1-2 years. I hold 3 of them… pic.twitter.com/Q6TWLWf7xs

— Porinju Veliyath (@porinju) September 7, 2015

At that time, the claim appeared outrageous because realty stocks were at the bottom of the barrel and were shunned by investors as pariah stocks.

Three categories of realty stocks

Porinju neatly divided his stock recommendations into three categories.

The ‘A Class’ comprised of Godrej Properties, Oberoi Realty and Sobha, which are inarguably blue chip stocks.

The ‘B Class’ comprised of the middle road stocks being DLF and Anant Raj.

The ‘C Class’ comprised of the junkyard stocks being DB Realty, Unitech and Ansal API.

Hefty gains are on the table

Let’s look at the performance of the stocks as of date.

As one can see, Porinju’s prediction was correct. The basket of realty stocks has delivered an average return of 48% and heavily outperformed the return of 19% given by the Nifty in the same period.

Junkyard stocks should have been avoided

In hindsight, Porinju ought not to have included the junkyard stocks in the portfolio. If he had eliminated the three C Class stocks, the average gain from the remaining five stocks would have spurted to 65%.

Of course, it is easier to be wiser after the event.

Understand difference between “Value” and “Price”

Porinju took advantage of the occasion to drive home the message that “Value Investing is all about understanding VALUE knowing the PRICE“.

Were not fancied, been through many challenges – still outperformed. Value Investing is all about understanding VALUE knowing the PRICE ? https://t.co/JgfeSnRPVB

— Porinju Veliyath (@porinju) April 20, 2017

Time is ripe to buy realty stocks: Mohnish Pabrai

Mohnish Pabrai, the visionary stock picker, has recently bought truckloads of two realty stocks, namely, Kolte-Patil Developers and Sunteck Realty, for the portfolio of his PMS.

This clearly implies that Mohnish believes that realty stocks are at bargain basement prices and offer the perfect balance of low risk and high reward.

Other astute investors also predicted boom time for realty stocks

In hindsight, demonetization was the perfect time for us to have grabbed realty stocks because they had touched lows which were unreasonable.

Interestingly, some astute investors had started bottom fishing at that time on the basis that it would be the “biggest story unfolding for patient investors”.

Started Bottom fishing in Real estate stocks. Biggest story unfolding there for patient investors. https://t.co/GsovC8wXnU

— Amit Kumar Gupta (@amitgupta0310) January 6, 2017

The most hated sector of #Demo in a nutshell : DLF +35%, JMC Projects +20%, Kolte Patil +75%, Sunteck +60%, Sobha +30% Brigade +60%. https://t.co/aezcCchckK

— Amit Kumar Gupta (@amitgupta0310) March 16, 2017

If Realty stocks do well, so will housing finance stocks: Basant Maheshwari

“Over the next five years, the housing finance sector will move into a trajectory that it has never seen before,” Basant said, his eyes sparkling with confidence.

Basant gave cogent reasons for his theory. He has also revealed that he is “super bullish” on PNB Housing and Can Fin Homes on the basis that these stocks are growing at 30-40% CAGR while their peers are growing at 20-25% CAGR.

Housing finance will be the next market leader: Vijay Kedia

Basant Maheshwari’s theory that the housing finance sector will “move into a trajectory that it has never seen before” fits in with Vijay Kedia’s theory that the housing finance sector could be the “next market leader”.

In my view, 'Housing Finance' sector could be the next market leader.

— Vijay Kedia (@VijayKedia1) January 30, 2017

Cheapest housing finance stocks

According to a study by Varinder Bansal of CNBC TV18, DHFL is the “cheapest” housing finance stock presently. It is quoting at a throwaway valuation of 1.8x FY18E P/BV while its nearest rival, LIC Housing Finance, is quoting at 2.5x FY18E P/BV.

DHFL is clearly the cheapest in terms of valuations in housing finance sector. pic.twitter.com/vWe7UQHtF2

— Varinder Bansal (@varinder_bansal) April 20, 2017

DHFL also offers a dividend yield of nearly 2% which implies that there is adequate downside protection.

DHFL has done very well with a 100% YoY return.

Rakesh Jhunjhunwala, the Badshah of Dalal Street, holds a massive chunk of 100,00,000 shares of DHFL which is worth Rs. 410 crore at the CMP of Rs. 410.

Motilal Oswal has recommended a buy of DHFL with a target price of Rs. 500 which implies that the stock is expected to give more hefty gains.

Real estate ancillary stocks are also a good buy

It is implicit that if the realty and housing finance sector does well, ancillary stocks such as Kajaria Ceramics, Cera Sanitaryware, HSIL, Century Plyboard, Sarda Plywood etc will also prosper.

In fact, as if to prove the point, Porinju bought 1 lakh shares of Shalimar Paints for Equity Intelligence, his PMS.

Conclusion

It is clear from the sayings and doings of Porinju Veliyath, Mohnish Pabrai, Basant Maheshwari, Vijay Kedia and other experts that we have to tuck into our share of realty/ housing finance / ancillary stocks ASAP and cannot be mute spectators if we also aspire to have glittering multibagger gains in our portfolios!