The Hindu Business Line : `There are gems to be found even in this market'

ASK Mr Nilesh Shah, President, Kotak Mahindra MF, about contrarian investing, and he will begin to cite examples where stocks, relegated and ignored for long, have reached mighty heights. But doesn't this market, at 6,000 points-plus, makes it extremely difficult for investors to pick the so-called contra stocks?

Mr Shah, who is trying to sell the concept, shares his answers with Business Line.

With so many sectors doing well, this market has no place for contrarian investors. Do you agree?

It is true that many segments of the economy are performing to investors' satisfaction. It is also true that a multitude of stocks have moved up in recent times. In some case, the movement has been sharp enough to let loose speculation that the market has bottomed out.

I am not taking a call on what may pass off as popular wisdom. However, I can state with reasonable certainty that there are gems to be found even in this market.

Recent instances will support my view. Also, there is sufficient historical evidence to suggest that contrarian views can pay well. Take the case of Bharti Tele, which was lagging behind despite consumers' growing preference for mobile phones.

But Bharti was a new company that did an IPO and not one that had actually gone down on the bourses...

I meant to say that not many investors were willing to consider when it was at Rs 45-50 or so. The company became more visible on the stock exchanges when people realised its potential vis-à-vis the emerging sector it was operating in.

Here, let me tell you about Tata Motors, which was known as Telco not very long ago. This company did not get positive reviews because of one or two sticky issues were linked to Indica, its first-ever passenger car. Teething problems over, it became a target for many professional investors.

Between the two scenarios, Tata Motors presented an opportunity. On another front,

I can refer to the PSUs in this country. Some of them did make decent turnarounds in terms of topline and bottomline growth.

Are Kotak's own funds invested in stocks like these?

Well, I can talk about such stocks as MTNL and EID Parry. The latter, as you may know, has quite a few businesses, sugar and fertiliser included. Now, for some quarters, fertiliser or even sugar may not be very exiting areas. These, after all, are not pharma or auto, both very dynamic businesses. However, EID Parry may well make sense for a contrarian buyer. The point is, it is important to look beyond mere `value investing' in order to execute a good stock-selection program.

Even a potential cyclical upturn can a trigger a stock.

Has the market peaked this time? Will it cross the last record?

I would like to respond by simply saying that our fundamentals are getting better. To repeat a cliché, the earnings potential of companies remains strong. So, in a manner of speaking, corporate growth is set to happen.

The market has already seen the power of domestic savers getting unleashed. While we are still under-invested in equities, Indians are progressively acknowledging the value of equity as an asset class. That should make a difference to the disposable surplus that households generally commit to equity.

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`There are gems to be found even in this market'