“Don’t hold on to your equity portfolio just to save on the tax outgo. If you think it has rallied enough, book profit and exit,” advises market veteran Raamdeo Agrawal in an exclusive chat with BusinessLine . Edited excerpts.

When did you start investing?

I started investing in 1980 when I was 24 years old.

What was your first investment?

My first investment was in the stock of ITD Cementation India, a construction company, which was then called Cemindia. I had bought then a few hundred shares. The stock tripled in a span of two years or so and I exited at that point.

How did you identify this stock?

I got hold of the company’s annual report from a friend who was doing the audit for ITD Cementation. I read the annual report thoroughly and compiled the financials to analyse the business prospects. It was a very profitable business, generating healthy cash flows along with strong growth potential. Those days, it was not easy to meet or talk to the management and annual reports and news reports were the only sources of information.

What has been your best investment so far?

Well, three stocks – Hero Honda, Infosys and Bharti Airtel.

We did extensive research on Hero Honda and our research team met the management and also visited their facility. The product was in short supply then and was selling at a huge premium. I was thoroughly impressed by the team, its business model and more importantly its ethics and corporate governance. I bought the stock in 1995 for ₹30 or so and sold it at ₹2,600 a share. During the period, Hero Honda’s market cap leaped from ₹500 crore to a whopping ₹50,000 crore. That is the power of equity investing.

The story of Infosys is also quite similar. I bought the stock sometime in 1997, when its market capitalisation was about ₹5,000 crore. On exit, its valuation was ₹1 lakh crore, sometime in 2000.

The stock, which was 2 per cent of my portfolio when I bought it, was 40 per cent when I sold out, thanks to the sharp price movement. The quality of management, and strong ramp-up in business outside India, helped put up such a strong stock performance. Likewise, I bought Bharti Airtel in 2003 and my average cost was about ₹25 a share while my exit price was ₹650; the stock, however, went up to ₹1,180. I exited the counter a little late in 2010, after the 2G scam broke out.

What is your current asset allocation?

Currently, about 90 per cent of my assets are invested in schemes of Motilal Oswal Mutual Fund while the rest is in direct equities. Besides the house I currently reside in, I have not invested in real estate.

What are the five things you look at when you evaluate a stock?

I firmly believe that the quality of business and quality of management are the two critical factors one needs to look at while making an investment decision. Bulk of the due diligence on a company could be done by just assessing it on these two aspects. Other aspects that I consider important in evaluating an investment proposal are its current performance, future growth potential as well as the longevity of the business. Also, it is important for one to invest only in businesses that one understands.

What have been your learnings through this journey?

First, it is extremely important to assess the management; never go with a crooked management. In my experience, wealth destruction in many cases happens only because of the poor management quality.

Second, don’t base your exit decisions on tax status. For instance, if you think that a stock you hold has had a strong run-up and will surely correct soon, even if it is within a year of your purchase date, don’t hold the stock to just save on short-term capital gains. It’s possible you may even end up losing all your money.

We’ve had a murky 2016. What do you think lies ahead in 2017?

The markets were volatile in 2016. Though demonetisation will leave its mark, the economy will make a strong comeback. With re-monetisation expected to get over by March 2017, I think the market will start rallying. With inflation expected to be lower, I expect a broad-based rally in 2017. Good quality companies that have been beaten down should see sharp recovery in 2017. I feel over a five-year horizon, the downside will be not more than 10 per cent, while the market has potential to more than double during this time frame.

What are the themes to bet on in 2017?

Conventional themes such as public sector banks, NBFCs, automotive and select commodities such as steel, zinc and aluminium that were shunned by investors in 2016 should see revival in 2017.

What is your outlook for gold and real estate?

Though I don’t track gold closely, the upward move in US rates is not positive for gold. I expect global gold price to slip below $1,000 an ounce. The fizz in the real estate market over the last 10-12 years is gone and will possibly not come back at least for the next three-four years.

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