India will continue to be a stock picker's paradise: Porinju Veliyath

Zee Media and Balaji Tele are among my top mid-cap picks, Veliyath says

In conversation with Puneet Wadhwa, Porinju Veliyath, managing director and portfolio manager, Equity Intelligence says the Nifty50 index will move to new highs this year, and will be able to sustain at five-digit levels. Edited excerpts:

The markets are nearing their all-time high again. Will they be able to surpass and sustain at higher levels over the next six - 12 months?

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

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

Some sectors like information technology (IT) are having so 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.

Is the Indian stock market pricing in the global uncertainties?

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. 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 to me 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 six - 12 months?

We are in the middle of an unprecedented systematic investment plan (SIP) revolution. Monthly inflow through SIPs will be Rs 15,000 to Rs 20,000 crore soon. Traditional avenues of Indian savings like bank fixed deposit (FD), gold or real estate are no longer attractive asset classes to invest. As market depth increases, FII flows - unlike the past - will become insignificant. I expect a panic buying from FII funds in two-to-three months.

How are the valuations looking at this stage? Do you expect the rally in the mid-and 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 small-caps that investors can add in their portfolio at the current levels?

Yes, large number of mid-and 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 Rs 35 levels and Balaji Tele at Rs 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 re-rating Reliance Industries post the recent Reliance Jio (RJIO) announcement. How should investors treat this stock now?

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 (RJIO) 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 this current disruption.

How do you see the corporate earnings trajectory in the next 12 to 18 months? Have the asset quality pressures for banks peaked out?

Non-performing assets (NPAs) with public sector banks (PSBs) continue to be a challenge. The government is making serious efforts to address the issue and bring back banks on track, which is very important to revive private investments and credit cycle. Corporate earnings will look up along with faster economic growth, as the government initiatives start trickling down to bottom of the pyramid.