‘India will continue to be a stock picker’s paradise’

The Nifty50 index will hit new highs this year, says PORINJU VELIYATH, managing director and portfolio manager, Equity Intelligence. In an interview with Puneet Wadhwa, he opens up on a wide range of issues, including the impact of global uncertainties an

Will the markets be able to sustain high levels?

I am not a technical expert, and predicting market movements is a tricky thing. From simple common sense, I can say the Nifty50 index will move to new highs this year and will sustain the five-digit levels.

In terms of stocks and sectors, where do you see the leadership in the markets coming from, if they have to move and sustain higher levels from here on?

Some sectors like information technology (IT) are having many challenges, and it is very difficult to expect significant upward movement in companies like Infosys and TCS, say, in next year or two. Reliance Industries has been leading the rally recently after nearly a decade of consolidation. Many other large-caps will follow the path and contribute significantly to the Nifty50 in the coming days.

How will the global uncertainties play out?

Global uncertainties have always been there and will continue to be around – be it Greece, Euro crisis, oil glut or Brexit or Trumpnomics. Media and experts will come up with new terms every other week giving opportunities for smart stock pickers to buy their stocks at a discount. The impact of these events on Indian economy and stock markets, if any, will be minimal and temporary.

How much importance will the markets give to the outcome of the ongoing assembly elections?

Markets will go up regardless of who wins the UP elections. The significance of UP elections is largely limited to media discussion, and beyond that it’s the outcome that will only motivate the government to focus more on development. Most significant achievement of our Prime Minister Narendra Modi is that he has brought development to the centre stage of Indian politics. Political parties, which survived on caste and religious identities in the past, are now being forced to talk development. Voters are smart today; they will reward performing governments and punish the non-performing ones.

What is the road ahead for domestic and FII flows over the next 6-12 months?

We are in the middle of an unprecedented systematic investment plan (SIP) revolution. As market depth increases, FII flows – unlike the past – will become insignificant. I expect a panic buying from FII funds in two- three months.

How are the valuations looking at this stage? Do you expect the rally in the midand small-caps to sustain?

Valuations are rich today and it will become richer due to expected faster economic growth and earnings visibility. Investors should focus on stock-picking rather than attempting to predict Nifty50 and S&P BSE Sensex levels. India will continue to be a stock picker’s paradise.

Are there any mid- or smallcaps that investors can add to their portfolios at the current levels?

Yes, a large number of midand small-caps will be re-rated. Management culture and ethics of many traditionally unprofessional companies are changing, especially with respect to shareholder wealth creation. Investors should keep their eyes and ears open to such turnaround stories and catch them early. I like two mid-cap media stocks currently, Zee Media at ~35 levels and Balaji Tele at ~85 levels. Investors could explore and try to understand the business model and their relevance for the future. We hold both the stocks in our portfolio (PMS).

What is the outlook for telecom stocks?

I am not a fan of sectors; I prefer to look at individual stocks. Telecom is a challenging sector with continuously evolving business models. Disruption in technology, spectrum charges, competition -- all impact the business. Only companies which can adapt and re-invent will survive; may be three-four companies will survive in the long run. I cannot comment on exiting stocks now, but selling long-term investments on short-term disruptions can be a bad idea.

The market seems to be rerating Reliance Industries post the recent Reliance Jio announcement. How should investors treat this stock?

I had talked about Reliance Industries being at an inflection point few months ago, and the market is agreeing with me now. I feel Reliance Jio could make it really big and take the market cap of Reliance Industries much higher. Bharti Airtel is adapting well to the new scenario and I wouldn’t be surprised to see it come out strong of the current disruption.