See Multiple Positive Triggers For Indian Markets, Says Porinju Veliyath

Indian markets will head higher from here, says the market expert.

Visitors take photographs in front of a bull statue. (Photographer: Dhiraj Singh/Bloomberg)
Visitors take photographs in front of a bull statue. (Photographer: Dhiraj Singh/Bloomberg)

The Nifty 50 index of the National Stock Exchange Ltd. (NSE) reclaimed the 9,000 mark on Tuesday and hit a new lifetime high. The outcome of state elections pushed up index heavyweights like ICICI Bank Ltd., Larsen & Toubro Ltd., HDFC Ltd. and Ultratech Cement Ltd., along with non-index large-cap and mid-cap stocks.

Can the upside momentum continue? Yes, says Porinju Veliyath, managing director and portfolio manager of Equity Intelligence India. The election results were a mandate in favour of transforming India, and is a positive trigger that will take the current rally forward, he adds.

Being selective and maintaining discipline will help achieve higher stock market returns, he says. Veliyath is positive on stocks like Transport Corporation India Ltd., Tata Global Beverages Ltd. and HSIL Ltd.

Here are edited excerpts from the conversation.

Sustainable Upside?

Do you think that the new high that has been attained will be sustainable?

Indian equities have a long way to go. There have been multiple positive triggers since the end of 2016. Political developments are important, and long-term equity investors should keep an eye on how the economy is performing. The Uttar Pradesh election results were very much in favour of development, in favour of India and in favour of change and transformation. Investors cannot be bearish on India because our economy is really small. It is a $2-trillion economy. We have to grow, not only at 6-7 percent, we have to grow at 10-12 percent for some time at least. That is the only way we can bring 50 crore people out of poverty. It is important for the economy and ultimately for equity investors. There are going to be many positive triggers going forward for the market.

I am very bullish, but at the same time one cannot be complacent and go on picking anything in the market, or betting on the index in a big way. I would like to talk about the disruptive world ahead, it is already disrupting many industries, many companies, many economies  so we are going to have many challenges too. Investors need not get excited at higher levels and try to make fast money. Discipline and being selective is important going forward. Passion buying, buying on tips, buying on SMS tips, these are to be avoided by small investors, they should not get trapped.

State Election Trigger

Apart from positive sentiment, do you think the state elections outcome has much to contribute? Most Bills are not expected to face a massive hurdle in the the Rajya Sabha right now.

Rajya Sabha is a problem. The “good Indians” are not in a majority in the Rajya Sabha. So that is going to be a block. It may take some more time for the patriots to be in the majority in the Rajya Sabha. But that will also happen in the next 1-2 years because we have to change. Today, a lot of anti-Modi kind of a gang in the country, especially journalists, have been opposing every move of this government. Why? Because they are attuned, accustomed to governments which never took decisions. We need to take strong hard decisions sometimes. Like demonetisation, which might affect people’s lives, but for long-term good. Corruption, especially political corruption has been the root cause for the poverty and under-development in this country. India is structurally rich, our economy is so rich we have no reason to keep half a billion people in poverty. I salute Narendra Modi for doing the right things for the economy with a long-term vision. That is what India needs.

There are two great things happening in this country from an investor’s perspective. 1) Development is coming to the centrestage in politics. Even the regional, caste-based, religion-based parties have started talking about development. This is very positive for the economy and for investors. 2) It has been proved in the UP elections that media sensationalism is failing. It is becoming ineffective, which is positive for India.

Double-Digit Earnings?

Earnings growth has not kept pace with the rise in the equities. When can we expect earnings to recover substantially, maybe see double-digit earnings growth?

I will say from today. The current regime in the Centre will continue till 2019. So the economy will progress, and when that happens, companies’ earnings will progress. That will lead to higher earnings and, over a period of time, higher price earnings multiples. When earnings catch up, the PEs will come back to normal, maybe in the next 2-3 years. Still investors will get excellent returns on their equity investment. Again, I want to warn investors, don’t be complacent. Investors have to be choosy and selective in this kind of disruptive world. Many companies will not exist after 10 years.

Are there pockets of the market which have a substantially high exposure to Uttar Pradesh, which will stand to benefit?

No I am not in that camp. UP is a very important economy. In terms of population, it is next only to Brazil. Brazil’s GDP is around $2 trillion. It means today UP’s GDP can be equal to India’s GDP if smart guys manage the economy. We also need smart leaders supported by stable politics, they can make UP equal to Brazil’s economy.

‘Turned Bullish On Reliance Industries’

Reliance Industries shares are at a nine-year high. Any view on this stock?

After 10 years I turned bullish on Reliance Industries. I said Reliance was at an inflection point and I was betting on the digital business, and the accumulated profits or the investments made by this company in the last 10 years. It was an underperformer for the decade and now it is coming out of that phase. Of course, during this phase it might have seen a 20-30 percent kind of movement. Even if you buy at these levels, Reliance can give you decent compounding in the coming years.

Any private banks or non-banking financial companies that you like?

Everybody likes NBFCs, microfinance companies, housing finance companies. Some of the well-managed companies are going to do well when economy progress. When Modi talks about Vission 2022, that’s something very important, ambitions of becoming a developed country, the ambition about making Housing for All. These are the important things happening in this country, done by the current regime at the Centre. 

Primary Market Offerings

What’s your views on the D-Mart and Music Broadcast IPOs. Are you willing to buy those shares on listing day and at what sort of premium?

D-Mart is a wonderful company and is going to grow much more.It can be a 5x company in the next 10 years. That’s the kind of potential that the company has. It is a well-managed company. But don’t compromise too much on the valuations. That’s the key because if you buy shares at the wrong price, it may take away you 2-3 years of your time and time is also money. But with some reasonable premium, I would recommend D-Mart if it corrects after listing at a higher price.

Midcap Bets

You have been very positive on Transport Corporation of India, Tata Global Beverages, the Future Group. Do you continue to hold your positive stance on these companies and if people were to enter these companies at these levels, would you advise them to do so?

These companies have relevance going forward. They are very unlikely to be disrupted by the world. Considering the structure of India’s demography and how these companies are big brands; they are the front-runners in many segments.So these companies can be bought at these levels . These companies have not really moved in the last few years, so they are safe bets.

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