One quality about Porinju that requires appreciation is the openness with which he talks of the stocks held by Equity Intelligence, his PMS.
This attitude of Porinju is salutary and in sharp contrast with the approach of other PMS providers who go out of their way to keep their holdings a top secret out of fear that potential clients may simply clone the holdings by themselves instead of joining the PMS.
The astonishing part is that despite the candour by Porinju, the AUM of the PMS has surged to Rs. 392 crore in FY 2015-16 as compared to Rs. 220 crore in FY 2014-15. This represents a steep increase of 78% in the AUM. If you compare it with the AUM of FY 2013-14, the increase is a mind-boggling 312%. It is also commendable that there has also been a quantum jump in the number of clients who are willing to trust Porinju with their hard-earned money.
|As on 31.03.2014||367||95.00||Discretionary|
|As on 31.03.2015||460||220.01||Discretionary|
|As on 31.03.2016||782||391.90||Discretionary|
Sadly, the steep increase in the AUM has led to a steep decrease in the returns from the PMS.
|Particulars||2015-16||2014-15||2013-14||Since Inception (*)|
In FY 2015-16, the PMS gave a return of 11.42% which compares poorly to the massive return of 71.69% in FY 2014-15 and 57.03% in FY 2013-14.
While the return of 11.42% outperforms the Nifty and BSE 500, it underperforms the return of 26.7% generated by the PMS of Manish Bhandari’s Vallum Capital in the same period.
Alpha Invesco, a reputed stock advisory service, generated a return of 10.2% in FY 2015-16 which its founders described as “below expectations”.
Let’s take a quick look at some of the stocks held by the Equity Intelligence PMS:
|Stock||CMP (Rs)||Returns In FY 2015-16||YoY Retuns|
Prima facie, there are two reasons for the sharp drop in returns from the PMS.
Contrarian stock picks which have not worked:
Porinju has invested heavily in contrarian stock picks like Selan Exploration and TGBL.
26% of our PMS is Selan Exploration! Stick on with conviction ideas; you may need patience, of course…
— Porinju Veliyath (@porinju) February 3, 2014
It may be recalled that Porinju has stayed defiant about the prospects of crude oil and has persisted with the huge holdings in Selan despite warnings from Goldman Sachs and Rakesh Jhunjhunwala that the future is very bearish for crude oil. It is notable that other ace stock pickers like Dolly Khanna exited Selan Exploration in the nick of time.
Porinju has also stayed defiant about Tata Global Beverages. I pointed out in an earlier piece that Porinju has been bullish about Tata Global since 2010 though the stock has delivered paltry returns since then.
— Porinju Veliyath (@porinju) February 20, 2016
Huge influx of funds has lead to “winner’s curse”:
The second reason for the muted show may be the fact that there has been a huge influx of Rs. 172 crore into the PMS in FY 2015-16. Porinju may or may not have had the opportunity to deploy all the funds in a meaningful manner. Also, the stocks that he bought in that period will obviously take time to mature and give returns.
This paradoxical phenomenon, where initial success leads to a huge influx of funds, which then leads to a deterioration in performance, is popularly known as the “Winner’s Curse”.
Penchant for ultra-micro-cap stocks with dubious management pedigree has compounded the problem:
The problem is compounded by the fact that Porinju has a penchant for micro and ultra micro-cap stocks with low liquidity. For example, Hind Industries, one of the worthies in Equity Intelligence’s portfolio (5,80,199 shares as of 31st March 2016), has a market capitalisation of only 11.70 crore and an average daily trading volume of only 1000 shares. It is obvious that one cannot neither enter nor exit such stocks except after causing violent price damage.
Atlas Cycle, Kerala Ayurveda, Ansal Buildwell & Zicom, ultra micro-caps with market capitalisation of Rs. 62 crore, Rs. 66 crore, 55 crore and 97 crore respectively, are other examples of this.
Porinju also stays defiant towards concerns regarding management quality. One can see from the tweet of 17th October 2014 that Porinju recommended Zicom despite warning of “management concern“. The stock has lost 60% since then and 72% on a YoY basis.
Zicom @ 105 | mktCap 185 Cr, Revenue 926 Cr, NP 45Cr, Net debt 375 Cr, futuristic business, worth exploring, despite management concern
— Porinju Veliyath (@porinju) October 17, 2014
In reply to a query as to how one could invest in stocks with low promoter holding and high pledging, Porinju explained that one should buy a basket of such stocks and hope that the winners will outnumber the losers.
@sanjeevnayini don't ignore; consider everything & apply common sense. when u pick 10 such potential multi baggers, 2 or 3 could fail..
— Porinju Veliyath (@porinju) October 18, 2014
The “winner’s curse” also afflicted Prashant Jain, the ace stock picker from HDFC MF. His funds have grown to such a mammoth size owing to his success in stock picking that it is now very difficult for him to find attractive opportunities to deploy the money. He is constrained to buy large-cap stocks where the returns are muted.
It will be interesting to see how Porinju deals with the issue and whether he will continue to delight his subscribers with superior returns in the future as well!