Wizard of Dalal Street: Govind Parikh's investment mantra

Wizard of Dalal Street: Govind Parikh's investment mantra

Govind Parikh of Govind Parikh Securities says selling right is more important than correct buying. He says it is necessary to keep a lot of cash. "We keep an average 10 percent cash in our portfolio," he says

I like to buy things in a bad market. Additionally, don't look current cash flow, concentrate on future cash flows — that is what I look at," says Govind Parikh of Govind Parikh Securities. He advises investors to buy good quality stocks when the market crashes. While sharing his investment philosophy with ace investor Ramesh Damani, on the Wizards of Dalal Street, Parikh says management integrity is very important when deciding which stock to bet on. He tells investors not to buy stocks impulsively. According to him, selling right is more important than correct buying.

He says it is necessary to keep a lot of cash. "We keep an average 10 percent cash in our portfolio," he says. He also does not think the bull market is ever going to get over in India in the next 15-20 years.

Damani: Let me just start with a quote from a great film, in the 1970's The Graduate - Dustin Hoffman was told by his uncle get into plastics.

What advice were you given when you graduated.

Parikh: Even before I graduated, while I was in my engineering third year my uncles - Naresh Khanwala and Kisan Ratilal Choksey, both BSE brokers, they recommended me to invest some money in shares.

So, even before completing my graduation, I was more interested in looking at the fluctuations every day. Damani: You still went for an interview in a chemical firm, didn't you? Parikh: Yes I did and I failed very miserably there. Secretly, I was very happy to fail in the interview.

So, I decided that I will go into the stock market and joined the Madras Stock Exchange as a stock broker. Damani: Tell me about early days. 1980's Chennai, Madras then, was still a backwaters for the capital markets wasn’t it? Parikh:

Yes it was. Most of the companies here were very conservative and we had a unique system of settlement in two days whereas in Mumbai the settlement used to take place in about 2-4 weeks time. So, a lot of guys used to be happy to sell the shares in Madras at a discount. So, most of the brokers were looking to buying shares in Madras and selling it in Mumbai and doing an arbitrage. However, I was more keen on seeing how the stock prices fluctuated.

So, I started taking interest in — apart from investing my clients money, I started investing my own money. Damani: You had a very interesting thought process on how you came about your MNC ideas, share that with us. Parikh: We had subscribed for the Financial Times London newspaper and once there was an offer of getting six international reports free of cost. In those days there was no internet and there was no other way to find out about how the parent company was doing. So, we wrote to them and we got the six balance sheets.

Damani: Which ones were they? Parikh: I got the balance sheets where all the subsidiaries were listed in India. - it was Birla 3M, Bosch , SKF Bearing, Nestle and Colgate . Damani: They became the ideal set that you looked at? Parikh: Yes. I was reading the 3M balance sheet and I found that they had some 60000 products and one third of the products were invented in the last three years. It was a highly technological company and it was darling of US stock markets. I was looking at Indian companies which was about Rs 200 - Birla 3M .

They had very few products so I went on buying these shares and till now I have not sold any share of 3M because I still feel that it has got too much potential to go ahead. Damani: That is staggering, now it is up almost 60X since you bought it. Parikh: It is about Rs 10000 around. I don't see the rate daily but that company is a great company. I think now specially with India coming out with so many other things, new cities, smart cities and infrastructure and all that, I think it is great company Damani: Talking about great company, what is the great company that you kept that allowed you to become a wise investor, what were your early influences in your career?

Parikh: Madras Cements and Lakshmi Machine Works were the two stocks that I bought. Lakshmi Machine Works was a company which I first bought. That influenced me to go into the market more deeper. I went in the factory, I saw that they had some 10 percent holding in a company which was the world number one company and they had some 5-7 year waiting list period. It was available at less than one multiple or one multiple.

So, I bought the stock at Rs 180 and saw the price go to Rs 7500 after one for one bonus. Of course I did not keep it for that long. We made good money in that as well as in Madras Cements. Damani: Was it still Mumbai oriented trade that brokers from Mumbai would come you take them and as a by-product you find these companies?

Parikh: That is right. The idea was that he company was very good and the company had to be popularised also. So, lot of people in Mumbai they did not know about Madras Cement or they did not know about Lakshmi Machine Works . So, once they came to Madras and they visited the management and they realised that these are all gold mines without even a scratch on them. So, Madras Cement and ACC - ACC used to be double of Madras Cement. Madras Cement had 4.5 lakh tonnes capacity which is now about 15 million capacity. They have never asked for any money from the shareholders, never diluted, no right issue, nothing and you see where the price of Madras Cement is and where the ACC price has gone.

Damani: What was the dividing point in your career when you decided that Govind Parikh as an independent investor has arrived as opposed to following the Mumbai leads? Parikh: That was when I invested in Dr Reddy's Lab . There was a conference of Dr Reddy's first public issue in Chennai. After the meeting a merchant banker friend of mine said we are going to have a dinner, why don't you stay back. I was very excited to listen to Dr Reddy because in his speech he talked about so many things which I can't imagine.

Nobody imagined at that time that such things could happen- he used to make a product which no one was making and make some profit and seeing him everybody will come there and he will switch over to the new product. So, thereby there was lot of money made in Dr Reddy's Lab. Damani: So, you got the management right, you got the company right and Govind Parikh had become an independent investor? Parikh: Yes. Every year I used to visit the company and the first time I bought the shares at Rs 11 and I sold at Rs 19. However with the money made I thought I will take a flight ticket otherwise I used to go by train. So, I took a flight ticket and went to Hyderabad and I was there for two days. I was so impressed with their factory and the way they work and all that. So, I have seen all their factories including their research centre later. It has been a great story.

Damani: Peter Lynch, one of the very famous fund managers of the world said invest in what you know but you are investing in where you stay. You have picked a lot of these stable south companies which have grew around the Chennai area. Parikh: It is because most of the companies in Madras they were very conservative first of all and they were technologically very sound. Some of them were like Indian leaders or even global leaders. So, this Sundaram TVS Group and Ramco Group and Murugappa Group, all these companies they are very conservative but there is lot of value in these companies. Technologically they are very sound. So, I invested in TVS group of companies, Sundaram Fasteners, Sundaram Clayton and even Sundaram Finance . They have rewarded shareholders quite a lot. Damani: But at that time you were more comfortable being in this area. You knew the people, you met the management. So, there was a comfort, that is why you were here?

Parikh: First of all it was easy to attend the AGMs and after the AGMs I always used to spend half an hour and most of the managements they speak about the company's future and all that, all the directors would be there. So, we like to stick around there for half an hour and try to understand more about the companies. In fact once one chairman told one of his directors that he has got more confidence in his company than our own self. You take for example Sundaram Clayton, there was a brokers conference in Chennai and those days that was the first conference it was a TVS Motors and Sundaram Clayton together and the time allotted for Sundaram Clayton was just 15 minutes. TVS Motor was for about one and half hours. That was the focus and everybody from Bombay was only interested in TVS Motors.

But I looked at Sundaram Clayton and this company was making air braking systems for the entire heavy commercial vehicles and the collaboration was WAPCO, which is a global leader. It was a combined company actually. So, this company in the bad times they made sure they were cutting down the cost and reducing the interest cost and all that and trying to be prepared for the good times. So, I invested in Sundaram Clayton in a big way and subsequently they have been very fair to the shareholders also. They gave shareholders equally what the promoters got, say minority shareholders also got the shares of WAPCO. And the stock which was about Rs 100-150, even it was Rs 300 about five to six years. Today it has become Rs 7,000 is WAPCO and Rs 1,800 is Sundaram Clayton. So, enormous amount of money has been made.

Source : http://www.moneycontrol.com/news/market-outlook/wizarddalal-street-govind-parikh39s-investment-mantra_3144141.html?utm_source=ref_article