How Porinju Veliyath made it big with small-cap stocks

In this Guru Portfolio interview with Mint,Veliyathshares his personal finance journey, and how achieving financial freedom has changed the meaning of financial planning for him.

How did your initiation into the stock markets happen?

I have been keen to know about brands and companies since my college days. The fact that a few big corporations owned most of the wealth and the impact their products have in our lives always fascinated me. I used to read a lot about brands, companies and wealth back then. So, After my graduation, I boarded a train to Mumbai as it was the place to be for anyone who was interested in stock markets. Luckily, I got a job in Kotak securities under Uday bhai (Uday Kotak) and started my career in the BSE ring as a floor trader during the ‘open outcry’ trading days.

When did serious investing start?

It must have been in the late 1990s. I was lucky to be associated with Chandrakant bhai (Chandrakant Sampat) to execute his trades in the ring days. He is the one who taught me about value investing is and I owe him a lot for that.

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What motivated you to start your own investment management firm?

I didn’t enjoy being in a crowded city like Mumbai and wanted to return to the serenity of my hometown. So, in 1999, I finally decided to quit from Parag S Parikh and come back to Kerala. There was a vibrant investing community here and many investors, started approaching me for advice on equity investing. That is how I started looking for a formal platform and I was advised that PMS is the way to go about. In 2003, we got the PMS licence and Equity Intelligence was born.

Can you take us through your schemes?

Equities are our forte. We only invest in listed public equities. We keep things very simple and focused and believe that all sensible investing is value investing. Coming to schemes, we only offer one single value investing strategy in both PMS and AIF—the difference as of now is only in the format of investment. The strategy remains the same in both.

As for your personal portfolio, how are you invested now?

I am always invested 100% in equities, other than my home and the farm where I live.

 

How often do you review your asset allocation?

Not applicable. 100% equity allocation suits us and we expect our clients to trust us with only that part of their savings that is meant for equity.

How much of your personal investment is allocated to your firm’s schemes?

None. There could be some overlapping stocks, but my personal investments are in riskier bets, including a few penny stocks. We are more conservative when it comes to client money, especially after our underperformance during the 2018 small and mid-cap meltdown.

You are popularly known as a small-cap Czar. Why is your portfolio concentrated in the small-cap category?

I am always excited about the opportunities for small companies in a country like India. Growth is not a choice, it’s imperative for them. Also, it is among these small companies that you can find multi-baggers. Interestingly billion-dollar market cap companies are also classified as small-caps in India.

Can you share some of the small-cap picks that proved to be multibaggers for you?

Hindware Homes, Tata Elxsi, CDSL, PDS, Raymond, Gati, and West Coast have been some of the multi-baggers. The recent historic financial reforms in India are making positive structural changes to our economy and a transformative environment for most companies. Some of the small and medium businesses may not survive but many efficient companies with relevant products/services, and managed by smart people, could grow well and reward shareholders. Identifying such transformation early in small-caps is the key for multi-baggers.

One strategy that worked for your portfolio in the past one year and one that did not?

As I mentioned earlier, we follow only value investing strategy. Stock wise, Raymond and PDS, both textile stocks, and CDSL were the outperformers in the financial year 2022. Luckily for us, stocks like Tata Communication, J Kumar and Unichem, which were underperforming last year, have started doing well off late.

Which stocks have contributed the most to your portfolio?

In the recent past, the likes of Hindware, Raymond, Unichem Labs, Gati, and BEML, etc., have given us good returns and we continue to hold them. CDSL and West Coast are two stocks where we booked good profits. Also, Tata Elxsi from which we have recently shifted to Tata Communications.

Do you invest in international stocks?

No. India remains the paradise for value investors, I think it would remain so for next few decades as well. Why leave this paradise for the sake of geographical diversification? I agree that we don’t have much listed new-age tech plays in India, but there are other opportunities in abundance

How do you pick a stock?

There are no hard and fast rules to stock-picking. I keep my eyes and ears open for any interesting cues. It could be anything—an interesting news, promoter action or sometimes even grapevines or scuttlebutts. Every stock has a unique story. If I find the price attractive against the value proposition, I dig deep. Having been in the market for the past three decades, I know a lot about these companies, so when someone tells me a stock name, all its past comes to my mind in a flash.

What does wealth mean to you?

I have seen both sides–from abject poverty in the early days to a comfortable life now. Wealth to me, in a sense, has been about outdoing my hardship in the beginning, now it is about helping others around me do the same. I am doing whatever I can through my foundation and otherwise.

How many months of emergency fund do you provision for?

I don’t have any emergency funds; other than the funds I hold for buying daily provisions.

 

Anyway, equities are liquid assets that pay out on T+2. However, I am an outlier in this. I would advise others to keep 3-6 months‘ worth of cost of living as an emergency fund. Also, buying term insurance and health insurance would be good for your financial future.

How do you involve your spouse in family finances?

Life is short and I do not believe in financial planning. Of course, I have the liberty to say this as I have achieved financial freedom. My wife is my colleague at Equity Intelligence.

How do you identify yourself as an investor?

I was lucky to be in the right place at the right time. And I was fortunate enough to not be fooled by randomness. I am a common-sense investor who likes to keep things simple, both in investing and life in general.

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