Ramesh Damani Discusses His Diversified Portfolio Of Favourite Stocks

Ramesh Damani, fondly called the “Nawab of Dalal Street”, is one of the most clear-headed people you will meet. When you are feeling despondent or jittery about the state of the market, Ramesh Damani can cheer up you with his clear cut wisdom and long-term foresight.

In a series of interviews to ETNow and CNBC TV18, Ramesh Damani has had free-wheeling discussions about the stocks that he owns and whether they are a good buy presently.

One aspect that is obvious from the discussion is that Ramesh Damani is a believer in the merits of a highly diversified portfolio.

NBCC – despite huge run up, will benefit from two powerful trends:

I own the stock (NBCC) in terms of a disclosure. Though it has been a multi-bagger in a short time, it seems okay that they have 3000-crore market cap, 1500 crore cash sitting and it is benefiting from two powerful trends that we see in the next few years.

One of course is that construction activity will pick up. That is what Narendra Modi government has been saying. Delhi is going to be completely redeveloped from starting with East Kidwai Nagar. So NBCC is well positioned to take advantage of the trends because it is a government company with no tender, and gets business on assignment basis.

Sundaram Finance & Agrotech Foods – compounding stocks:

Sundaram Finance, based in the south, is a franchise. It is as good as HDFC Bank.

The other thing I like is a consumer business, something called Agrotech Foods. It is about 530. Both these businesses over time will compound 15% to 20% a year and they have already established that they can be long-term players in India. Those stocks for the next 5, 10, 20 years probably seem promising to me.

Gati – overvalued at present:

Though Gati was the favourite, it is now overvalued. The big drive for Gati has been the expansion to ecommerce. That business is growing. Once the smart phone penetration in India picks up — it is going to pick up over the next 12 to 18 months — Gati will benefit handsomely. But the stocks had a great run up. So while we still own it, I do not think it is a bargain basement currently anymore.

AgroTech Food – valuations are cheap given the huge scale of opportunity available for growth:

Though AgroTech Food is still a single product company, they are building it as a brand as powerful as Nestle’s Maggie noodle. The point is in the entire sector in America in the packaged food industry, there is a lot of action, a lot of mergers and takeovers are happening. Tyson Food for example took over Hillshire Brands.

So, over time ConAgra at a 1000 crore for FMCG company is fairly cheap. You go back in to get how Lever trades, Dabur trades, Britannia trades, you would realise that as this company gets critical size and scale the PE multiple will expand and the business will grow.

AgroTech Food has barely scratched the surface for peanut butter or popcorn. So there is a long way ahead.

Midcap IT stocks:

I have quite a large exposure to midcap IT and I paid the price of it after May 16th when the entire market rallied except for the technology stocks, but they seem really cheap. I mean if you look at the technicals of these companies, you look at the fundamentals, they are fairly cheap and they will do well and all of them are breaking out almost at 10-15 year base. Polaris is breaking out of 15-year base. Geometric is broken out of 15-year base. So technically these stocks at least look they are headed for much-much higher.

Polaris, Geometric & Sonata – doing exciting work:

I own Polaris, I own Geometric. I own Sonata. I own a lot of them across the board. Nucleus has been an all-time stock of mine. So I own quite a bit of them and from a price action point of view, this suggests much higher prices and fundamentally these companies are doing exciting work. There will be good time for midcap tech as long as the rupee stays around 59-60.

Though Geometric has disappointed in the past, it has gone through a very painful restructuring exercise. They paid McKinsey & Company a lot of money to do their restructuring. The kind of space they are in will benefit tremendously over the next few years. The 3D engineering, the dassault programmes. This company can surprise an upside and it is at life-time high at around 125. It has broken that high and now it is standing on 135. Typically that signals there is a major turnaround in the company. So I am very optimistic about that.

If you look at Polaris, for example, and on the other hand the restructuring they are doing seems to benefit shareholders, they are going to split the company into software businesses and product businesses.

Tata Elxsi – not a bargain at present:

Tata Elxsi has had too sharp run up. I still own it and I am still bullish on it, it is not necessarily a bargain.

Cement stocks & PSU stocks – time to buy:

So if you want to talk about economy-related business that you are bullish on, I will suggest that time has come to look at cement. The kind of promises that we have heard from the NDA government, what Modi had said, what Modi has done in Gujarat, suggests that we are going to see a long boom ahead for cement share. So cement is going to go from surplus to a shortage and we will have perhaps good pickings in the cement sector.

My portfolio happens to own more FMCG, technology, but it is time to look also at cement or other sectors of the economy like PSUs.

Public Sector stocks have a functional value. Yes, the government has time-to-time – for example in the oil companies – never let the market participants make money in them. But there are fairly attractive opportunities around in some of the defence PSUs, some of the construction PSUs. I have been buying them and they offer good value to me. Just some of them have been used as a milking cow or the mulch cow for the Government of India.

Cement stocks will see huge upside:

I did a very interesting statistics on cement which might surprise your viewers too. The United States from the last 115 years used 4 giga tonne of cement for all the highways, interstate construction. China in the last 10-years has used 6 giga tonne of cement. The point is Narendra Modi is believer in construction and infrastructure as he has shown in Gujarat. There could be a huge upside in cement shares. We are now at a position of over capacity and prices are soft but over time as the construction boom unrolls I think cement stocks might actually face shortage of capacity. I am not saying now but say in a couple of year’s time. India is still at some piddling amount of cement consumption, may be 350 million tonne or something like that. So, there is a huge amount and if you follow say the Chinese path you can imagine what will happen to cement company profits.

Oil PSU stocks:

I have some Oil PSU stocks and they are very cheap. The hope is that at some point subsidiary reforms will kick in, so till then we watch. Sometimes it is better to buy these PSUs after the news is out, after the deregulation is complete, rather than suffer through the pain as you have over the last 5-10 years in these stocks.

Financial sector stocks:

We have a good position in the NBFC. We have some position in the private sector banks. If you look at one of the major companies, I own ICICI Bank which is almost on the verge of a lifetime breakout around Rs 1500. So that on technical basis at least looks attractive to me. The NBFCs are having a great run – companies like Gruh Finance, companies like GIC Housing – they are all having a great run. Sundaram Finance, very quiet performer, never diluted its equity despite being a finance company. So there are good pickings in that sector. There is this thought process that ultimately as Indian economy grows and the savings come in, there won’t be enough people to tap into the saving. So these are good quality businesses that are to be prized and to be held for many years to come from this point on all sorts.

United Spirits – can double in 3 years:

These are some FMCG businesses that are still fairly cheap. They will go through a period of consolidation and I don’t expect this stock to double in the next 18 months, but in the next 36 months, there is a good chance the stock could double even from these levels. These are basic businesses as we learnt that people will drink in good times, people will drink in bad times. So these are great businesses to keep.

About 10-years ago, United Spirits was available at Rs 40. It is hard to believe but it was under USD 1. You could buy beer that was more costly than the stock. Having said that I think that kind of opportunity excitement I see for example in the e-Commerce, media space.

E-commerce is a great theme but the companies directly in it are in “nose-bleed” territory:

I just don’t find the valuations of the unlisted companies in the ecommerce space compelling enough. I find these valuations of Flipkarts, Snapchats to be actually on nosebleed territory. I just follow the valuations and find them to be a bit unattractive. There are better pickings in the secondary market.

Buy logistics & packaging stocks to benefit from e-commerce boom:

We tend to look more at a great high quality available at cheap rate. So I would tend to think that some sectors that might surprise people looking ahead of the next three to five years, perhaps is big e-commerce logistics sector, which with India getting 200 million customers on a smart phone, that represents a huge opportunity. If you look at packaging company, logistics company, media companies – that represents for a stock picker like me a very attractive opportunity for the few years ahead.

The growth will come from the logistics companies. It will be in the packaging businesses; people who help in the packaging business. They all have to advertise because that’s the basic retail calling. So lot of the media businesses will also benefit from that. A lot of the people who are into data would benefit from it. There will be a lot surprising winners in that pocket. But it seems a good sector to start focusing and trying to spot opportunities.

Logistics & packaging are the direct way to play the e-commerce space:

Ultimately everything has to be moved back and forth because if you don’t have retail space you want last mile delivery. Anytime you get last mile delivery that will be very valuable. I think for whatever it is worth globally logistics companies would do well, packaging companies would do well in this business and then of course media. So, you have to kind of go through analysis of all these companies and you will be able to build a portfolio around Smartphone, data, logistics, packaging if you just look at all those verticals.

I will tell you which logistics and packaging stocks I have. But I must warn you that I bought them at much lower and I want to say that I would wait until quarter one results are out because probably they will run up ahead of the result. I have Blue Dart, Gati, Transport Corporation of India and I have Balmer Lawrie. So those are my four players in the logistics space.

In packaging, I have Andhra International Paper, which is the global logistics in terms of cardboard packaging, and TCPL. I am more looking at the people in the cardboard box type of space because ultimately when you get books or appliances they will be packaged in a cardboard box.

General stock picking strategy – Buy Great business:

My approach fundamentally tends to be that I want to own a great business and I want to own it through various cycles. I really feel that when you have a business, you do not sell it because two months are going through bad headwinds.

We tend to buy great businesses and try to hold them for very long periods of time. So, I am not necessarily going to go out and buy some cyclical stock because the market may give it a better performance at this point. However if cyclical happens to be good like a banking stock by all means buy it.