The recent fall in prices of small- and mid-cap stocks caught a few seasoned investors on the wrong foot. Porinju Veliyath, Kerala-based ace stock-picker and portfolio manager, on Wednesday wrote a letter to his clients admitting that he was ‘baffled by the unusual sell-off in small- and mid-cap stocks’.
Small- and mid-cap indices in India have been battling rough weather. When the Sensex and Nifty, benchmark indices, had retraced 80 per cent from their low levels this year, a large number of small- and mid-cap stocks barely moved after they had crashed by 20-70 per cent in February and March.
“Frankly, I am a little baffled this time at the extent of erosion of portfolio value in such a short period of time. However, I feel comfortable looking at the ‘values’ of what we own, rather than the ‘prices’ what we see today,” Porinju’s letter to his clients said.
Delivery and trading volumes in the domestic markets have been significantly down for some time now, indicating a slowdown in fund flow into equity markets.
“We have nothing much to do right now, in a market environment that absolutely lacks buying interest, but wait patiently. We would do some restructuring at an appropriate time in a more rational market,” Porinju wrote.
“I strongly believe there is widespread mis-pricing among quality mid-caps. It’s now a great time to cherry pick,” he said.
Porinju, who is on a holiday trip to Europe, said his letter was well received by clients. “At least 50 of my clients said they would be adding more money to my PMS kitty as I have been frank with them and they are thrilled and ready to be patient,” he added.
“Appreciate the letter, I will transfer another ₹25 lakh,” said a mail to Porinju’s firm from one client. The fund manager shared the letter on his WhatsApp. “Worried neither nor hasty for results, patience has virtues,” said another investor, responding to Porinju.
Porinju, who has been running PMS since 2003, currently has an asset base of ₹1,800 crore, said underperformance was observed only in 2018.