Dance when everyone is dancing, but don't get drunk: Vijay Kedia on picking multi-baggers in a bull market

In the 10th episode of Market Cafe, host Surabhi Upadhyay welcomes veteran investor Vijay Kedia, a market participant for over three decades. Kedia, known for his successful stock-picking strategies, shares insights into his investment philosophy. He emphasizes the importance of staying humble in a bullish market, cautioning against overconfidence. Kedia unveils his SMILE formula for stock selection—focusing on small-sized companies with medium experience, large aspirations, and extra-large market potential. He recounts examples like Tejas Networks, illustrating how he identifies companies that may have fallen temporarily but possess the potential for a strong comeback.

Discussing the current market dynamics, Kedia advises investors to enjoy the ride but remain selective and not get carried away by euphoria. He suggests looking for opportunities in sectors tied to India's growth story, such as aviation and tourism. While acknowledging the expensive valuations in some sectors, Kedia remains fully invested, emphasising the need to stay calm and patient. The conversation concludes with insights on staying grounded, Kedia's thoughts on future and options trading, and advice for young investors on building initial capital through savings rather than high-risk trading strategies.

Surabhi Upadhyay: Hello and welcome to the 10th episode of Market Cafe. We are back after the year-end holiday with more coffee and more conversations on markets investing life and much more. I'm your host Surabhi Upadhyay. Well, the guest who's going to join me on the show today actually needs no introduction. He is a veteran investor who has been in this market for over three decades. He started when he was really young, when he was just 19. Now you would have heard him before as well. But today I want to make him sit down and tell us his secret sauce, the magic mantra that powers his investment psyche. I want to find out how Vijay Kedia picks his multi baggers. So let's go well, Vijay ji, it is so good to see you here. Thank you for taking out the time. I know it's a bit of a drive to come out of you know, office and studio. But that's the whole point. It is Market Cafe. That's the name of this show. So we'll talk markets. That's the idea. So, thank you so much for coming.

Vijay Kedia: Thank you for inviting me to your program.

Surabhi Upadhyay: And I must say this is the first time I'm meeting you in 2024 it's not too late. I think I can still wish you a Happy New Year. Happy Sankranti and lohri and happy new year. So, you tell us how has the year started off for you?

Vijay Kedia: So far so good. The market is at a new peak, they're at a new high. Yeah, yeah, I remember one song 'new high daily bana rahe ho, kyu itna jaldi maccha rahe ho'.

Surabhi Upadhyay: You know, you're great that you bring this up and that's what sometimes people will wonder. We had this consolidation right, what consolidation basically two weeks we were in a range and then an all-time high happened. So, is this pace worrying you at all?

Vijay Kedia: First of all, I will tell you, this is what I have noticed in every bull market. In a bull market and this kind of bull market, red hot bull market, reaction does not last more than two days. Reaction correction, correction. Whatever you call your correction, it doesn't last more than two days. Yeah, you know and some time in half day correction is over. Yeah. So, this is a sign of a red hot bull market. So as you are asking me now your second question is is the pace worrying me or not? I'm not worrying because I have done. I have worried a lot in my life, nothing worries me. It is also part and parcel of a bull market. Yeah, obviously it is not going to be like this forever. One day it is going to correct one day it is going to crash. So that is a part and parcel of a bull market.

Surabhi Upadhyay: Yeah, absolutely. Absolutely. So you don't and that is why we want to get you here because a lot of people follow you here you and you have spent you know long, hard over three decades in the market. Probably more I don't know. You started when you were still a teenager, that's when you had your first brush with stocks at 19 is when when you started so many years in the market. What do you think is the biggest teaching or learning that the market has taught you?

Vijay Kedia: So, I will tell you there are two parts of your question. One part is like I've written a few months back that bull market creates stupid investors. Pardon me for this, because I'm not saying stupid to people.

Surabhi Upadhyay: I get it.

Vijay Kedia: Just a point in just the stock market that bull market, bull market creates stupid investors and stupid investors create bear market and bear market creates smart investors, smart investors create bull market

Surabhi Upadhyay: Oh, that is the cycle is a cycle, the cycle of life in the market

Vijay Kedia: So this is what it happens every time in every bull market. This cycle is repeating itself. Now coming to your second point that it is a matter of... what was the second point?

Surabhi Upadhyay: So I want to start by asking you for yourself. What is the biggest learning jo market ne aap ko sikhai hai, in all the years that you spent your right from, you know, the trading days, in the team

Vijay Kedia: Whatever I have understood little bit about this market is this that, you know, everybody's a genius in a bull market. Okay, the bull market is like spring. You're not contributing anything into this. There's momentum, it's a momentum, law of nature. It is happening, so don't get too much excited. And don't take too much of credit for yourself that I have done this, I have done this

Surabhi Upadhyay: Don't start thinking you are Warren Buffett or Vijay Kedia

Vijay Kedia: Vijay Kedia is nothing, you know. But don't try to feel that you are invincible, or you have learned the trick of investing. And now you're a successful trader or successful investor. I always feel that if you think that you are making money in this kind of bull market because of your skill, that that means you haven't seen a bear market, you know. Be polite, be humble and the market is giving you this opportunity. As I say that everybody is a genius in a bull market. You can claim that you are a genius, but you are. You could be a genius sometime, but it could be an ass sometime. So, don't take credit. Now the flow is there spring is there and in spring all kinds of flowers, you know bloom. So, just take advantage of it and think about what is going to happen day after tomorrow not today. Because ultimately this euphoria is not going to last forever. As I said it is going to die down.

Surabhi Upadhyay: So when you say it is going to die down is that because you see some risks on the horizon? Are you saying generally markets are cyclical?

Vijay Kedia: It's a shadow, it's like day and night, happy and sad. It's a cycle, it has to happen like that. I was just looking at the previous day's numbers. Now we're in a market where Rs 2,000 -3,000 cr is coming daily from domestic institutions. I think that is the only difference in this cycle that there is so much retail money It happens every time you are talking about what Rs 2000 3000 crore in a market cap what $3.5 trillion I don't know whatever is the market cap alone today so $3-3.5 trillion. We are talking about Rs 2000 crore or 5000 or 10,000 crore, Rs 16,000 crore mutual fund SIP is collected every month what is Rs 16,000 crore? You tell me Rs 16,000 cr is just $2 billion in a market cap of $3.5 trillion or $4 trillion you are collecting $2 billion and you know what you are talking this is I don't think that it makes any difference this time also. Okay, calculate 10 years back what was our market cap and what kind of money used to come into the market? So ratio-wise, you will find it could be lesser than that.

Surabhi Upadhyay: Basically you're saying that it will be digested by the market. That'll not stop

Vijay Kedia: It is a drop in the ocean. Stock market with total stock market kind of the market size, the money what the kind of money it's coming, it's just a drop in the ocean. A time will come over this SIP is concerned maybe I had said somewhere that Rs 16,000 on your channel? I'd said it's Rs 16,000 per day. Yeah, maybe if not Rs 16,000 per day a Rs 16,000 per week is very much visible in maybe in two years time

Surabhi Upadhyay: In the near future. No, I couldn't I couldn't agree more. Absolutely. Because people have just started tasting what, you know, equities can do

Vijay Kedia: It is just the beginning of this trend

Surabhi Upadhyay: Because, like you're saying, money will keep coming in. T he question on valuations. So we speak to experts you know, throughout the day and the common discussion 19 times is standard to 20 times as you know the normal for India 21 pe its market is getting overvalued. How do you look at these debates about overvaluation because money will keep coming and chasing. That multiple will go up. So how should investors deal with this concept that it is overvalued do not buy

Vijay Kedia: No I don't, so far my own theory is concerned my own principles and on my own stocks are concerned, I don't compare them with the market. I don't compare them with the market P if you are talking about the market P then maybe P of Nifty is only 20 if I'm not wrong, yes. Th ere are some stocks which are putting at 60-70-80-100-120 P some shares which are actually available at the single digit P. So when you're talking about market we are talking about on on an average so I look at the market from my personal investment point of view. So I don't find that I own any shares which is quoting at a 60-70-80 P at all so I'm comfortable. Of course there must be some exuberance because difference between a fish market and the stock market you know, price differs everyone go in the morning, do you have a different price to go after one our price is different. So this is the nature of the stock market. So that is why I said that don't think about today investing I have learned one thing Surabhi that one thing is very important. Don't, if you are a long term investor, don't think about today sure. Don't think about tomorrow also. Think about next week or next month or for this next year. Forget about all this. Live for today, tomorrow never comes. Tomorrow does come you will never know next month does come you don't know whether they're going to live or not. So I'm not worried about all this.

Surabhi Upadhyay: Keep your eye on the on the long term. Got that? Yeah. So and that is where especially in a market like this picking the right stocks becomes all the more important. It's always important, but even more when you're going to put money in a 22,000 market even stocks have run up, you know, capital goods and defence stocks and things have already run out. Then I think the art and science of stock picking becomes even more difficult and you know, you need to focus and that's why we have you here today to give us a bit of a crash course or a mini lesson because you have been doing that so successfully in your portfolio in many, many stocks right? We always hear you talk about it and we discussed in our earlier shows Atul Auto we discussed you know Punjab Tractors the story is very well known. Today I want to ask you that stocks jo multibagger job select karte hai, which go on to become multibagger. How do you start? What is it that you pay? Do you back a management? Or do you look at an industry case. Kis industry mein growth hone wali hai. Yaha se stock picker karu or the business? How does Vijay Kedia pick multibaggers?

Vijay Kedia: Now it's very simple for me, since I have been practicing this since ages, okay, for more than two, three decades. So that is why I put I can say that it's easy. But of course, investing is not easy, although it is simple, but not easy because we only make everything complex. As you know that I'm applying that SMILE formula that everybody knows. We are not going to discuss that. Besides these, well, I have some buts.

Surabhi Upadhyay: Please give them the full form. Maybe there are new viewers who have joined and maybe they haven't  heard much about the SMILE philosophy, that's his philosophy of investment.

Vijay Kedia: SMILE. S stands for small in size, medium in experience, large in aspiration and extra large market potential. This is what I am following. I am trying to catch a fish in the ocean, not a crocodile in the pond. But if you are today, you are a small fish, you can transform yourself and you have any cover up. This is what I'm looking for in a company. But my other other philosophy is very simple. That I am I'm just tracking you can say that an athlete, okay, which has set a record in the past. And if that athlete falls sick, I just keep it on my radar, I keep that athlete on my radar, okay, you know, like a company which has done some which has created some milestone in the past, okay, whenever the last economy was whenever last boom cycle was there, that time they had done some things, they have created some milestone, okay, and now they have fallen sick. I'm waiting for that athlete to recover, recover and then start running again, it's past glory, or better than that, only thing is that stamina should be there in that athlete

Surabhi Upadhyay: Give us some examples from the portfolio if you can have, you know, the one on stock where you might have adopted this approach.

Vijay Kedia: there are many stocks and I think that that is the backbone of my investing, like I applied the same formula. And again, we are talking about stock. I'm not a SEBI registered consultant, I don't pay any services, I don't offer any services, I don't charge anything nor I am a consultant nor broker. We are just discussing to understand the thought process. Like, I had bought for example, Tejas Network during COVID. Okay, it's a company. Before COVID, the its stock price was ₹400 and it was turned to be the only company in India in telecom equipment, networking equipment, yeah. Not in services in equipment, it was termed as the maybe China's potential of India, But ultimately the stock price did not do well and company did not do well and the stock price fell from ₹400 to ₹40 during COVID and company incurred a loss of ₹100 crore in a year. It was an athlete, which has created a track record. Yeah, you know, and but fallen sick, yes, and came down to ₹40 during COVID. Of course, COVID also helped it to come down to the absolutely compounded the crash, that is all right, but the company was available at a throwaway price. And that time I found that all these telecom services companies, because they are giant, like a Jio was there and of course, Airtel and Vodafone, two and a half companies as they call it. Those companies were still surviving and other 10 or 15 companies had vanished. So now these telecom companies that had started doing capex, otherwise they had a very bad patch in 2012-2019 or so. I realized that this is the only company in India which is into this network equipment and the future of telecom services company, which are the customers has started reviving. So to me, it was a no brainer at that point of time. And the kind of money that company was losing, actually, they had cash in the books. So I bought Tejas and luckily, it helped me

Surabhi Upadhyay: I am just checking the stock market price of Tejas Networks right now as we have this conversations. 862, you bought close to 40. Yeah, that is the way a multi bagger is. So that's one way. So that is obviously one way we understood that lesson that you you know, pick, well performing companies good growth companies in a downturn, when things are not going in their favor, but if they have the stamina, as you said, they will indeed bounce back. Any other thing and any other tips you'd like to share with us in terms of picking a stock

Vijay Kedia: Now I will give you one example. When we sit in the plane, the air hostess tells you So what I feel that you can sense what is going to happen in India, you can sense which story is going to play out you can see or where is the next opportunity. I realise this may be one and a half years back, forget about all this one thing I've realized, sort of be that when a luxury become necessity, that is the story to watch. That is going to become the next story. You know, when luxury becomes a necessity, now coming to this thing. So one and a half years when I started looking at all these things around, and then I bought an airline company. Again, it's not a recommendation just for reference purposes. Just for an example. I bought IndiGo. I said on TV also on the budget last budget day in February 2023, before the January, February. So just looking at this thing, forget about I did not see any ROC

Surabhi Upadhyay: Usually they say airlines are the worst business and they never make money. Right? This is like worldly wisdom of the market.

Vijay Kedia: Of course, even Mr. Warren Buffett also said that maybe he's right, but things change. You know, remember, he was , something were held up and there was one of the best performance now I think 30 40% of his portfolio is Apple only. So things change. And he has also said that principles are outdated. He has also said the same thing. So I think this airlines thing is going to play out for next 10-15-20 years. I may go wrong. And I may sell my share tomorrow. Also, please remember the absolutely, yeah, you're putting caveats, trying to for the benefit of the fellow investors. Yeah, I'm trying to share my thought that how do I judge the story? How do I do that? So this is how I feel this idea should be you should think of ideas. Yeah, you look around and you will find a lot of ideas

Surabhi Upadhyay: Lots and lots of thoughts, lots of ideas over there, which now brings me back to today. Now we've done the theory part of it, how should one approach this and apply this, you know, the philosophy that you just taught us? How do we apply that in today's context, because when you get a 1000-point fall, it becomes very easy. You know what stocks you want to buy? And even if they've run up a lot, and tell us if you think that let's say defence, capex, PSUs? Are you still convinced that they can run highe r? That's a question that I think all of our viewers keep asking us, please ask the experts. how to even do it. Because that big fall is not coming where people who rush in and quickly, you know, have their shopping list ready?