porinju: In for a long haul? Porinju pitches for quality midcaps

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NEW DELHI: If you are padding up for a longer innings on investment pitch, banking and small microfinance companies make the cut, says midcap czar Porinju Veliyath.

According to the ace investor, growth prospects of the microfinance sector, especially in consumer and retail finance segments, look “very impressive”. The companies in this space are trading at high valuations — 5-10 times the book value — as growth builds.

In an exclusive interaction with ETNow, Porinju revealed his preference for IDFC and Capital First, which are headed for a merger, and Federal Bank.

“We have exposure in Federal Bank. Recently, we bought it after the big sell-off,” Porinju said.

He cautioned that it’s too early to write off some old generation private banks which are improving their efficiency level and have got a lid on NPAs. “So, the next one, two or three quarters are very important. They will give you much more visibility. Once that visibility happens, the stock price could be doubled. So, maybe, you have to take some chance before the full visibility comes if you buy it at a bargain price.”

On the market divergence — the record-setting rally in Sensex and Nifty and the correction in midcap and smallcap space — the founder and CEO of Equity Intelligence said the frontline indices represent a different scenario today.

“It represents some irrational activity of certain kind of people,” he stressed. He was quick to add that there is nothing wrong in bluechip investment as it’s good.

Giving some perspective, he explained that if one buys top 10 quality companies in India at today’s PE and valuation, it may fetch 5-10 per cent CAGR for the next 5-10 years. Some of them are seen to get you even 20 per cent CAGR.

But “if you look at opportunities in mid and smallcaps, especially after this big sharp correction, you are going to make, maybe 30-35 per cent CAGR for the next five years and that is the kind of opportunity I am seeing in the market”.

Porinju’s wise counsel: Steer away from shady, dying companies and irrelevant businesses.

He made a pitch for medium quality midcap and smallcap companies with a relevant business model and decent growth prospects. His estimate is that these companies may be offering a PE of 10 or 15, or even single-digit after the sell-off, but these are the ones one can rely on.

Porinju is clear that the opportunities cannot be compared with 2013 or 2014, but there are still companies that can reward investors.

“India has only around 1,000 companies with investible quality companies. You have to choose from these 15-20 companies. So, that is call stock picking. I think this is a wonderful opportunity to ignore the so-called highest quality large caps and come to mid and small caps,” Porinju said.

Since January 1, the benchmark Sensex has risen 12.4 per cent till August 9. The BSE SmallCap index has plunged 14 per cent during the same period and the BSE MidCap index has corrected 8.3 per cent.





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