Porinju Veliyath, the well-known value investor, has sent a letter to investors on 14th September 2018. In it, he gives us his view on the market and an idea of what’s happening with the Equity Intelligence (EQ) PMS. The EQ PMS was down a staggering 18.5% in April-June 2018 quarter, a stark departure from its hugely successful long-term record – which has been a CAGR of 32.76% from its inception in 2003 to 2017. His stellar track record as a value investor has elevated him to the position of one of India’s most popular investing icons.
What Porinju says
In the letter, Porinju Veliyath notes that only seven of the BSE 30 stocks and 17 of the Nifty 50 stocks have outperformed in the past year. Three stocks – TCS, Reliance and Infosys have contributed to 50% of the benchmark’s performance in the past year. Indices representing mid and small-cap stocks have underperformed.
Turning to the performance of the EQ PMS, Porinju notes that “this phase has been particularly challenging for the kind of stocks we tend to build portfolios from…We encourage investors to see the current underperformance in the light of strong outperformance in the previous few years. As we have learnt over the years, everything is cyclical including portfolio performance”.
Porinju then reaffirms conviction in his stocks and says he will stick to his knitting instead of chasing what is fashionable in the markets.
He says: “When we started our journey back in 2003 we were driven by the passion for “Value Investing”. And as a tactic, we chose to focus on seeking value primarily in companies that didn’t comprise the Top 200 companies. Back then we saw hardly anyone focusing in this segment and hence decided to cut our teeth operating in that portion of the market. The journey has been rewarding…we put little energy in figuring out next market swing or for that matter any macro parameters. Our complete energy and focus are on seeking value opportunities by looking at businesses in the chosen area of market place.”
He further adds: “When (the) price goes down, we tend to revisit our initial hypothesis of value. In case we find our original hypothesis altered for some reason, we may initiate some portfolio changes. But in cases where our original hypothesis stands, we are not bothered by (the) short-term decline in prices,” he says. He ends his letter with an affirmation of his confidence in “young India, progressive government reforms and low equity allocation in savings”. According to Porinju, these augur well for serious long-term investors.
Porinju runs his PMS firm Equity Intelligence (EQ) based out of his headquarters in Kochi.
A PMS or Portfolio Management Service manages a stock portfolio on your behalf. It is similar to an equity mutual fund but there are major differences. A mutual fund pools money from several investors and issues units in lieu of its assets. These units have a Net Asset Value or NAV which is declared on each business day. A PMS does not pool your money with other people’s and does not issue units. The stocks in the PMS are held in your own name and your money in the PMS is held separately from that of other investors.
Veliyath’s PMS charges a fee of 2% on the quarterly average balance in it and a fee of 10% on the returns it makes above 10 (hurdle rate). You can read our review of Porinju Veliyath’s EQ PMS, here.
As mentioned earlier, the EQ PMS was down 18.5% in Q1 of FY 19. Here is how the EQ PMS has performed over the past five years:
|Financial Year||FY 14||FY 15||FY 16||FY 17||FY 18||5 year CAGR|
Click here for Letter to Investors sent by Porinju Veliyath.