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Friday, Sep 09, 2005

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Cashing in on the Indian growth story

Rasheeda Bhagat

"FIIs are not donating to this country; they are buying into India because they believe they can make money here." — Porinju Veliyath

Porinju Veliyath, the CEO of Equity Intelligence, is extremely bullish on the equity market and says the present bull phase is fuelled by liquidity and money that is chasing the "Indian growth story. I still go by what I told Business Line a year ago, that if you have above-average intelligence you can get 40-50 per cent return for the next five years by investing in select Indian equity."

He agrees that in some companies the valuations may be overstretched and the price earnings multiples high. "But please understand that the growth happening in many Indian companies is unusual and hence the high valuations. In many family-run companies the management is getting more professional, more focused and the new generation with MBAs is taking over. In some companies the older generation was siphoning off money to escape tax or deprive minority shareholders. That kind of narrow thinking is gone now. Efficient, professional and smart management is making Indian companies globally competitive and the availability of cost-effective skilled labour in India will have a big impact on both manufacturing and the services sectors."

On the concern in the minds of many retail investors that the markets will crash once the FIIs pull out, he says, "I see highly educated analysts with smart suits talking nonsense on TV channels that the market is going up because the FIIs are buying, so be careful. FIIs are not donating to this country; they are buying into India only because they believe they can make money here. I agree that it's a liquidity-driven rally, but that is no reason to be bearish. Will the FIIs buy into a company they don't find valuable? This rally is driven by fundamental strength or else it would have petered out very soon. Despite warnings, the rally continues. Of course one day the bears will be proved right because corrections have to come... but that will happen not because the analysts are smart but because corrections are an integral part of the markets."

He believes the markets will do well for the next 5 to 10 years, but investors should "understand that buying equity means buying a stake in the company. This is not a gambling instrument and your fortune depends on the growth of the company, so look at the valuation before you buy a stock."

He says his PMS has given spectacular returns because "we are a dynamically managed portfolio service. We are fully into equity and sell even good companies because we find better opportunities elsewhere. And, sometimes, I've sat on cash for up to 80 per cent. In 2000 I could give a 17 per cent return only because we got the valuations right."

He says in the coming days the infrastructure sector is going to do well. "We have recommended Hindustan Construction and bought Nagarjuna Construction at Rs 135 a year ago, today it is Rs 1,200, but of course we booked profits in between. Cement companies will do well; the fortunes of some of the south Indian mid-cap cement companies are changing."

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