real estate stocks: We are at the start of a virtuous cycle in real estate: Anshul Saigal
How you are looking at the overall market mood? How are we placed vis-à-vis the overall macros right now and with the earnings season kicking in what is the expectation?
As the famous market saying goes, history does not repeat itself but it rhymes. We need to go back into history and take a look at what happened between 2003 to 2007. In that period, Sensex rallied from 3,000 to 21,000. But the entire rally was a one-way rally. There were corrections in between. Two things were going in conjuncture. One was liquidity and the second was earnings growth. Both those things are in place today.
We have liquidity and earnings growth in abundance in the market. At least the last three quarters show that earnings have been growing well. Having said that, if we see speed bumps we should not be surprised. It may not be similar in proportion but a correction in the market is something that is always healthy.
As regards to the long-term trend, we think that the trend is intact because both earnings and the liquidity are in place. Due to valuations, a correction may be healthy because weaker hands can go out of the market. It will always be better to take a slight breather so that the market can continue its next leg of the rally. On that count, I would say that this is a market where one needs to be cautious. We have seen a huge rally in the last one year and there will be pockets of value but one needs to be cautious of the overall market being slightly frothy.
Would you be comfortable adding fresh positions in realty stocks?
The last cycle has taught us that focussing on good balance sheets and staying with sector leaders and quality businesses is going to protect you if there is a downturn in the market. Of course, what that means is that you give away a little bit of upside but that is fine to prevent downsides from playing out. In that context, I would recommend staying with quality businesses with strong balance sheets.
The real estate sector is quite a nice opportunity. The inventory levels of completed construction are at multiyear lows and the number of builders in various cities have come down by 50-70% because of various regulatory measures that the central government has taken. The interest that buyers have in this sector is going up. The affordability is as high as it used to be in 2003.
The first leg of the volume uptick will be because of end users, which will spurt price activity and that will bring in investors. We are at the start of a virtuous cycle. It is an interesting sector to look at for the next 2-5 years.
What are you expecting from this earnings season? Which sectors are going to lag?
The next few quarters are going to be interesting. We will have a low base in this quarter because of the impact of the second wave of Covid. There was a complete lockdown last year and so this will be a low base quarter. Going forward, we will have a higher base. As a result, we will have to be more cautious on earnings in the the next quarter and the quarter after that. In this quarter, because of the low base across many sectors, we will see strong earnings. IT sector has already started on a reasonably strong footing. We think cement will be a little weak quarter-on-quarter, but on a year-on-year basis cement should be strong. Building materials, in general, should be strong. Banking and finance will be a little muted at this time because of Covid. Most banks and financial institutions have put brakes on growth.
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