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Let me bring on board Porinju Veliyath

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who's managing director and portfolio

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manager equity intelligence India

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joining us. It's been a while Porinju

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since uh we've spoken to you here on ET.

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Now uh let me first start off by how

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you're looking at the small and midcap

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space because that's really your forte.

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You believe that balance sheets look

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good. Uh there's earnings resilience

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visible at least uh Q4 earnings were

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strong. Uh and do you believe that

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riskreward looks decent or or would you

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currently say that we're largely fair

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where markets are?

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>> Uh hey good morning everyone.

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>> Very good.

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>> Uh yeah the small and midcap uh as all

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of us know you know in the last two

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years uh they have corrected very well.

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Earlier it used to be you know everyone

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used to feel the the valuation

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uh it was not comfortable when don't the

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previous four years the way the markets

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moved especially this modern midcaps

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stocks going up by five times 10 times

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and some of them 20 and 30 times so that

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was [clears throat] a very special four

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years of Indian stock market history I

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would say it may not repeat in the next

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the near future so I think a lot of

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fresh money came into the markets the

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SIPs were uh you know flowing in and a

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lot of people got carried away and uh

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you know then the stocks are being a lot

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of them are being you know operated or

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managed so it has created into a real uh

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overbought and I would say uh

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overvaluation kind of a uh structure so

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that has corrected very well but maybe

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there are still stocks to be uh you know

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worth correcting uh on a valuation basis

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looking at the future earnings potential

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or the earnings visibility I would say.

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So that way we right it has really

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bottomed out maybe in the last two

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months you might have seen a lot of

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small and midcaps moving up by 20% 30%

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some of them 40 and 50%. some special

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strokes have doubled in the last two

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months like the ster lights of the HFS

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HFCLs of the world. So it's a very uh

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dynamic interesting market out there. In

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general I would say it's again time to

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um you know uh cherry pick in the small

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and midcap segment. It's going to be

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rewarding.

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>> Hi morning. Um I hope you are enjoying

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the uh rains in Kerala while we are not

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getting any rains in Mumbai but uh uh

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but within the small and midcap space

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where do you see the value now coming in

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because you are a value investor uh is

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there specific pockets that you're

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looking at or specific sectors that

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you're looking at? Um

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no specific sector is uh you know

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speaking uh currently uh because more

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importantly it's it's like you know

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stocks have behaved differently in the

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last two years even uh within the small

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and midcap segment there are companies

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uh stocks which have corrected

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significantly uh by 40 50 60% and uh

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some of them you know uh there is

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earning visibility there is growth

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coming in so maybe there was some kind

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of temporary events or developments

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which has uh suppressed the earnings of

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these companies and you know market

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punishes very badly when there is a

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general trend of you know small caps

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going down when there is a lower

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earnings lower numbers people punish

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badly so some of them very worthy

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businesses well-managed and you know

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futuristic in nature um the valuations

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have come down by half if you see the

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normalized earnings maybe because of the

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temporary issues there is a high P

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currently. So there are stocks that way.

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There are companies which may be

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suffering because of this Gulf war

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happening commodity maybe it's their

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feed stock their raw material prices

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have shot up they can't pass it on

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immediately. So those kind of temporary

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negatives

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uh could be an opportunity uh to buy

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into you know worthy companies and small

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caps. So it's more than a sector. I

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don't want to tell any particular names.

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I see uh wonderful opportunities for uh

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cherry picking of stocks in the market

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>> and any uh cherrypicking ideas because

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your fund [clears throat] value

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investing has uh you know outperformed

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the benchmark nifty in the last 3 four

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months.

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>> Uh so what is driving that

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outperformance?

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>> Uh in fact I would I want to say we have

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underperformed the markets in the last

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two years. uh you know if you see the

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nifty or sensex or even uh even the

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midcap indices but that those things

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happens you know with the special

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strategy of a fund manager uh it may not

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work always so there could be cycles of

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those kind of strategies. So we have

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been going through of course the last

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few months uh there is a significant

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outperformance as you rightly told but

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that may be happening to many uh small

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midcap uh fund managers. So we are in

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line with that and but more importantly

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going for the future you know now uh we

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have been evaluating the 12 years of

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Narendra Modi as PM it's something uh

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you know very every Indian should be

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proud of every knowledgeable Indian

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should be proud of I would say to be

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precise and you know the the kind of

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more than the numbers now everybody talk

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about so many houses are built so much

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is the UPA transaction so much is the uh

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general than accounts for the toilets

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built more than 11 crores. So if you

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list out that numbers no doubt this is

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amazing. No other leader in this country

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could have done it. Of course there is a

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backing of a strong political system

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currently which is also blessing for the

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nation. We can't afford you know it is

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very easy to go the Sri Lanka or

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Bangladesh or kind of ways. We cannot

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afford it. We have to we have to look

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after 1,400 million people. So India has

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been lucky to get a a lion I would say

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like Narendra Modi as our leader with a

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strong and stable politics in the last

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12 years and we have fully utilized

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that. Of course, there are things we

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have to we have to improve. There are a

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long way to go in many aspects like uh

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the judiciary, the bureaucratic uh you

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know cholesterol whatever we say and uh

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you know the taxation fund actually

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simplification is not happening even

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though we are talking about it and you

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know there are many things like the

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personal income tax still at very high

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40%.

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And uh you know even dividend taxes are

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still very high at 36% reduced recently.

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So 36% on a second income tax it's very

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high. We had it earlier 22% now it is

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increased to 36%.

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So there are certain things to be skewed

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and you know made more uh rational and

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reasonable and market friendly. We have

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long way to go in the economy. Of

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course, we missed a lot to China in the

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'90s and later. We all know uh China was

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far behind India in the early '90s.

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Maybe 9798 our economy was very same per

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capita income or the GDP of the nation.

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And now where where is India and where

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is China? It's a big question. But we

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have done lot of work. A platform is

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created for a much higher growth and to

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give a competition to China. Even though

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we have to go a long way, we are just

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above $4 trillion economy. China has

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gone to $19 trillion economy and uh you

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know but [clears throat] see we have

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doubled our per capita income in the

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last 12 years. It's not a small thing on

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a PPP basis or even otherwise. So and

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the kind of reforms big ticket reforms

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India has uh done without which we would

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have been not in such a good shape. Of

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course there are challenges. Even today

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and tomorrow is going to be the more

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challenges.

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So it's uh I should congratulate the

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political leader of India uh Sri

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Narendra Modi for for leading the way

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and uh taking uh you know strong and u

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wonderful decisions bold decisions and

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uh for leading the country. There's a

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lot of work which has been done on

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various sectors whether it's

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semiconductors where whether it's PLI

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and from a market point of view um

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you've seen the expansion of the entire

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uh you know retail base as well um as a

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portfolio manager uh how how's that uh

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uh how are you seeing the flows now

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means are you seeing more investors now

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coming into various wealth categories

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including PMS which you manage uh has

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that increased a lot?

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See the market breadth has really gone

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up still India you know it's not a very

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very big stock market I would say even

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though we have grown very big uh

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compared to the earlier periods

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uh there are challenges you know there

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are liquidity issues in the market when

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large funds try to sell or buy you know

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the the sensitivity of the price uh it's

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it's very high so but we are evolving

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into a much bigger stock market we are

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going to be a 10 trillion economy and of

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course more than a $10 trillion market

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cap. So we are on the way. We are moving

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very fast. Uh and and the equity

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investors are benefiting from all those

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developments happening, all those big

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ticket reforms, all the bold decisions

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this country is making. You know the

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value of India has gone up significantly

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in the global arena.

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people feel proud to say I'm an Indian.

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The passport of India has got a more

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value today than maybe 15 20 years ago.

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So we are in the right direction. We are

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a major uh you know India is inevitable

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in the global arena. We are a very

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strong economic force and a political

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force.

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So all these things are going to reflect

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in the stock market, the market

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capitalization, the kind of domestic

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investments

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uh and the households in India investing

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in uh equity has really shot up in the

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last many years and the households are

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going to benefit in wealth creation by

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investing in equities. So that if the

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PMS or AF of mutual funds uh I think

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every every such segments in the markets

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are going to grow do well and uh is

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going to benefit uh in wealth creation.

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you you know some of the big themes that

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have played out over the last 12 years

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one being defense you know I was looking

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at uh the kind of defense exports that

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we do it was it was extremely small and

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it's skyrocketed especially in the last

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couple of years you've seen a very sharp

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increase this is a theme uh do you

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believe that the kind of growth clip

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that's playing out with regard to

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defense and I'll probably just try and

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pull out those numbers uh from where I

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read it

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can that sustain Can that continue and

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how do you play it now because it's a

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well discovered theme of sorts as well?

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>> Yeah, the defense make in India theme

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it's it's amazing again you know we

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should appreciate the political leaders

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taking that uh initiative and

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encouraging it in a big way helping the

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industry all out which is very important

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for the nation our security our safety

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and our economic safety also.

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uh see there is no doubt we are in the

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infancy when it comes to uh defense

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manufacturing

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and uh consuming or exporting whatever

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it is we have got huge capabilities is

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under buildup and uh but the same time

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if your question is about uh stock

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market opportunities

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uh it's not very clear you know when

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when the industry is going to go five

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five-fold or 10fold kind of growth in

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the coming years uh we have used listed

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companies, some of them are unlisted

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space, some of them are in PSUs. Uh so

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it's it's a very tricky uh thing uh the

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valuation you know some of those smaller

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companies in the catering to defense or

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having uh defense manufacturing

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ambitions they are already priced for

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the next 5 years.

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So uh whether to uh whether to bet on

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this at this kind of valuation is not an

00:12:53.440 --> 00:12:56.480
easy question but there are

00:12:54.959 --> 00:12:58.320
opportunities.

00:12:56.480 --> 00:13:00.399
Uh there are many companies coming up.

00:12:58.320 --> 00:13:03.680
Many companies are getting listed with

00:13:00.399 --> 00:13:05.279
the new IPOs from in the sector. So this

00:13:03.680 --> 00:13:08.079
is a very interesting sector to watch

00:13:05.279 --> 00:13:10.320
for investors. There's no doubt. Um but

00:13:08.079 --> 00:13:12.240
the the question really you know whether

00:13:10.320 --> 00:13:14.959
you can buy and this momentum of stocks

00:13:12.240 --> 00:13:16.639
will continue. I don't know. It's a very

00:13:14.959 --> 00:13:17.600
difficult question, very complex

00:13:16.639 --> 00:13:19.279
question.

00:13:17.600 --> 00:13:21.920
>> Right. Right. Purju. So I'll just

00:13:19.279 --> 00:13:24.240
quickly mark out some numbers for viewer

00:13:21.920 --> 00:13:27.440
context on what I was speaking about.

00:13:24.240 --> 00:13:29.360
1500 cr is the FI27

00:13:27.440 --> 00:13:33.200
defense export number that we saw.

00:13:29.360 --> 00:13:37.040
Currently stands at 38,000 cr. 38 12,000

00:13:33.200 --> 00:13:40.000
cr which is FI26. In FI25 as well that

00:13:37.040 --> 00:13:42.160
number was at just 23 a half,000 cr. You

00:13:40.000 --> 00:13:45.200
seen a very sharp increase really.

00:13:42.160 --> 00:13:48.880
That's what I'm trying to capture. A 63%

00:13:45.200 --> 00:13:51.360
Y growth compounded for the last 10

00:13:48.880 --> 00:13:53.360
years is what we've seen uh in defense

00:13:51.360 --> 00:13:55.360
exports in particular. Anything else

00:13:53.360 --> 00:13:57.600
Purinju in terms of big themes that

00:13:55.360 --> 00:14:01.120
could play out over the next maybe 5 to

00:13:57.600 --> 00:14:03.199
10 years uh which are probably looking

00:14:01.120 --> 00:14:07.360
decently valued and not really

00:14:03.199 --> 00:14:10.000
completely picked on. What's your sense?

00:14:07.360 --> 00:14:11.920
um one sector I strongly feel you know

00:14:10.000 --> 00:14:14.800
some of those IT companies which are

00:14:11.920 --> 00:14:17.199
going to leverage on the AI evolution

00:14:14.800 --> 00:14:20.399
and you know what India is capable of

00:14:17.199 --> 00:14:22.079
providing services or you know uh

00:14:20.399 --> 00:14:23.680
implementation

00:14:22.079 --> 00:14:25.760
uh so there are some companies in the

00:14:23.680 --> 00:14:28.480
midcap segment

00:14:25.760 --> 00:14:32.399
uh which will uh take advantage of the

00:14:28.480 --> 00:14:35.120
AI revolution uh by by uh playing their

00:14:32.399 --> 00:14:37.040
role or some of them are moving fast.

00:14:35.120 --> 00:14:39.680
There are many first movers in many

00:14:37.040 --> 00:14:43.120
segments. So I think investors should

00:14:39.680 --> 00:14:46.079
watch this segment uh of software

00:14:43.120 --> 00:14:48.880
services like you know uh which who will

00:14:46.079 --> 00:14:50.480
benefit with the AIO

00:14:48.880 --> 00:14:53.199
otherwise uh healthcare and

00:14:50.480 --> 00:14:54.959
pharmaceutical some of them have

00:14:53.199 --> 00:14:57.279
corrected well some of them are moved up

00:14:54.959 --> 00:14:59.839
recently. I think again a sector which

00:14:57.279 --> 00:15:03.360
is not going to see any kind of um

00:14:59.839 --> 00:15:06.800
slowdown. Uh we will see uh more demand

00:15:03.360 --> 00:15:08.480
for healthcare and pharmaceutical um

00:15:06.800 --> 00:15:10.720
sector.

00:15:08.480 --> 00:15:12.959
>> Punju you know you have interesting

00:15:10.720 --> 00:15:16.560
picks in your portfolio. You have Orurum

00:15:12.959 --> 00:15:19.279
Propt Tech. Uh you have Fertility Wine

00:15:16.560 --> 00:15:23.279
Wineards, Kerala Ay,

00:15:19.279 --> 00:15:26.480
Giojit Finervices, An Unselousing. Uh

00:15:23.279 --> 00:15:30.000
interesting thing. Uh give us a sense of

00:15:26.480 --> 00:15:32.639
what goes behind uh you know taking

00:15:30.000 --> 00:15:36.480
exposure for these uh stocks. Uh what is

00:15:32.639 --> 00:15:39.920
the kind of ad you know mot be behind

00:15:36.480 --> 00:15:43.600
these stocks? Actually these are some of

00:15:39.920 --> 00:15:44.639
the um what do you call small cap stocks

00:15:43.600 --> 00:15:46.720
in my [clears throat] personal

00:15:44.639 --> 00:15:50.240
proprietary portfolio not in the fund

00:15:46.720 --> 00:15:51.920
actually of course we have geojit as a

00:15:50.240 --> 00:15:55.120
stock in our main uh portfolio

00:15:51.920 --> 00:15:57.040
management and otherwise or prop tech

00:15:55.120 --> 00:15:58.720
kind of stocks it's like you know a high

00:15:57.040 --> 00:16:01.519
risk high reward kind of bets I have

00:15:58.720 --> 00:16:04.560
done personally and you know I love risk

00:16:01.519 --> 00:16:08.240
so I have a habit of investing in such

00:16:04.560 --> 00:16:10.160
uh uh such kind of companies is so or

00:16:08.240 --> 00:16:13.600
it's like a startup or on prop tech

00:16:10.160 --> 00:16:15.360
because you asked me so I I have a lot

00:16:13.600 --> 00:16:17.839
of confidence on that business model and

00:16:15.360 --> 00:16:20.079
they are building it up without much you

00:16:17.839 --> 00:16:23.199
know burning of cash

00:16:20.079 --> 00:16:25.440
uh so and property technology is

00:16:23.199 --> 00:16:27.920
something in the in fancy in the country

00:16:25.440 --> 00:16:29.920
so it has long way to go because

00:16:27.920 --> 00:16:32.000
property market in India is very big

00:16:29.920 --> 00:16:34.320
whereas catering to that you know the

00:16:32.000 --> 00:16:37.199
property technology has a scope but this

00:16:34.320 --> 00:16:38.800
is a very small uh company I please

00:16:37.199 --> 00:16:41.120
don't take it as any lead because you

00:16:38.800 --> 00:16:44.639
ask me I'm just answering it's not in my

00:16:41.120 --> 00:16:46.800
PMS or AF uh I'm holding it in my uh

00:16:44.639 --> 00:16:49.680
family uh fund

00:16:46.800 --> 00:16:51.680
>> any fresh buys Punju that you've made as

00:16:49.680 --> 00:16:54.240
part of the fund over the last maybe

00:16:51.680 --> 00:16:57.040
month or two have you used this dip to

00:16:54.240 --> 00:16:59.519
to make uh make purchases how much is

00:16:57.040 --> 00:17:01.120
the cash you sit on uh how do you view

00:16:59.519 --> 00:17:04.160
all of the uncertainty that's playing

00:17:01.120 --> 00:17:06.480
out are you taking advantage of it

00:17:04.160 --> 00:17:06.799
>> uh we are not sitting on any cash.

00:17:06.480 --> 00:17:08.480
>> Okay.

00:17:06.799 --> 00:17:11.199
>> And we have not been sitting on much

00:17:08.480 --> 00:17:12.959
cash earlier also. It was a bad thing.

00:17:11.199 --> 00:17:15.839
So when we look back would have been

00:17:12.959 --> 00:17:20.559
nice to sit on some 15 20% cash. We

00:17:15.839 --> 00:17:23.120
always try to feel anyway. So um

00:17:20.559 --> 00:17:24.799
uh I don't know I can tell the names.

00:17:23.120 --> 00:17:27.679
Thomas Cook is a stock which has come

00:17:24.799 --> 00:17:31.679
down significantly recently. We have

00:17:27.679 --> 00:17:34.160
picked it in the fund. Um I think it's

00:17:31.679 --> 00:17:36.799
on a small up move after we bought

00:17:34.160 --> 00:17:39.039
recently. there are some another hotel

00:17:36.799 --> 00:17:42.720
company I don't want to mention the name

00:17:39.039 --> 00:17:45.679
it's again a small cap uh uh it has come

00:17:42.720 --> 00:17:49.679
down by 50 60% so we started picking

00:17:45.679 --> 00:17:54.240
that stock so um I think there is no

00:17:49.679 --> 00:17:56.559
lack of um opportunity or names ideas in

00:17:54.240 --> 00:17:58.080
the market there's no doubt uh but

00:17:56.559 --> 00:18:01.280
general market you know the broader

00:17:58.080 --> 00:18:03.039
market has corrected so well it's uh but

00:18:01.280 --> 00:18:06.480
it's not going to be exciting market

00:18:03.039 --> 00:18:08.240
ahead also one has to believe in general

00:18:06.480 --> 00:18:11.440
uh I don't believe the internal markets

00:18:08.240 --> 00:18:14.240
are going to jump in a big way uh our

00:18:11.440 --> 00:18:18.640
main indexes or even you know overall

00:18:14.240 --> 00:18:21.440
market so very selective uh pick value

00:18:18.640 --> 00:18:23.200
picking bottom up approach that that

00:18:21.440 --> 00:18:25.520
will work because our economy is very

00:18:23.200 --> 00:18:27.600
dynamic new and new segments are coming

00:18:25.520 --> 00:18:30.960
up new and new opportunities are being

00:18:27.600 --> 00:18:34.400
built and uh you know with a wonderful

00:18:30.960 --> 00:18:37.520
uh political leadership more uh you

00:18:34.400 --> 00:18:40.480
policy stability is happening and I I

00:18:37.520 --> 00:18:43.919
think it's a it's a good market. we are

00:18:40.480 --> 00:18:46.480
very um uh what do you what do you say

00:18:43.919 --> 00:18:48.480
it's not a cheap valuation it's not an

00:18:46.480 --> 00:18:50.480
exciting valuation for any stock picker

00:18:48.480 --> 00:18:54.160
in general

00:18:50.480 --> 00:18:57.600
uh I would say uh but it's a it will it

00:18:54.160 --> 00:19:00.320
will remain uh you know costly market

00:18:57.600 --> 00:19:01.760
you can't get uh Indian market at the PE

00:19:00.320 --> 00:19:04.240
of some of the markets what people

00:19:01.760 --> 00:19:07.039
compar nowadays uh because of the

00:19:04.240 --> 00:19:10.160
structural positives and the confidence

00:19:07.039 --> 00:19:13.600
of the nation and you know It's a it's a

00:19:10.160 --> 00:19:15.760
it's uh something um something you know

00:19:13.600 --> 00:19:19.520
more than the numbers

00:19:15.760 --> 00:19:21.840
uh the mindset has changed as a nation.

00:19:19.520 --> 00:19:24.559
We are very powerful and we are going to

00:19:21.840 --> 00:19:27.280
be more powerful in the global arena. So

00:19:24.559 --> 00:19:29.840
all these things are to be watched by

00:19:27.280 --> 00:19:32.240
investors and monitored and you just see

00:19:29.840 --> 00:19:35.280
the recent Gulf crisis how we managed it

00:19:32.240 --> 00:19:37.919
so well. Even our our inflation has not

00:19:35.280 --> 00:19:41.600
shot up like many other countries. it's

00:19:37.919 --> 00:19:44.240
under control that kind of uh you know a

00:19:41.600 --> 00:19:47.200
financial management discipline I would

00:19:44.240 --> 00:19:50.799
say discipline uh the way India managing

00:19:47.200 --> 00:19:52.880
its economy and the finances uh has led

00:19:50.799 --> 00:19:54.640
to this kind of a stable situation

00:19:52.880 --> 00:19:57.600
otherwise there were enough challenges

00:19:54.640 --> 00:20:00.640
for us to get into trouble.

00:19:57.600 --> 00:20:02.559
>> Okay. Uh thank you so much Punju for

00:20:00.640 --> 00:20:05.600
coming in and speaking to us uh and and

00:20:02.559 --> 00:20:07.840
giving us that perspective uh today.

00:20:05.600 --> 00:20:09.919
>> Thank you. Thank you so much. Thank you.

00:20:07.840 --> 00:20:09.919
And