More than real estate stocks, go for proxy plays now: Devang Mehta, Centrum India
Some banks, lots of NBFCs, building materials sector to benefit from govt’s real estate move.
Do you think there is reason to get excited about owning realty stocks on the back of the steps announced by the finance minister last evening?
Whatever was done yesterday augurs very well for real estate sector. It is more of a relief package rather than a stimulus. Probably a lot of real estate players and home buyers who were stuck would find relief out of this measure. Would all the realty stocks rally from here on? Yes, but to me, the proxy plays would be more important.
A lot of banks which were already stuck in a lot of such projects which were 50% complete and were about to be declared as NPA or have been declared as NPA. There would be more beneficiaries — some banks, lots of NBFCs, PSU banks, building materials as a sector — all will benefit more. Some of the real estate companies would benefit but as I said, it is not the time to get carried away and buy any type of stocks.
Stay in the fundamentally great stocks, companies which were not getting relief out of this, would get a little bit of earnings momentum from here on. It will take its own sweet time, three months, six months down the line. However, the structure is not yet finalised and it is not time to get carried away but to buy only the time tested ones.
Do you think chasing stocks for all those who have missed out, still makes sense?
The rally has been too fast and furious for a lot of people to digest this type of earnings or rather market momentum. One gets a ‘left out’ feeling among a lot of participants. It is sort of liquidity driven, as foreign investors have started to invest in the last three-four weeks. The sense here is that the market has actually not been led only by liquidity, but is also the revival of earnings. A lot of people had written off the second quarter earnings expecting a washout, but that has not been the case. There are a lot of green shoots as well.
My sense is that this rally is driven not only by liquidity but also by bit of fundamentals and a glimpse of economic recovery which will take place via monetary and fiscal stimulus where RBI is cutting rates and also government has started taking a lot of steps in the last two-three months. So yes, there is some juice left to the rally. Of course, nobody knows if in the shorter term, there can be 200-300 point rally here on, but the sense is that it is more a buy-on-dips market rather than a sell-on-rise. Every dip has to be accumulated to buy fundamentally good stocks.
Is Titan one of those stocks one should buy on every decline or does a 10% decline not make it a value buy yet?
There are two answers. If you ask whether it is a value buy, the answer is no, it is not a value buy. Rather, it is a buy or an accumulator because what we have seen that there are a handful of such stocks in India, maybe 15-20 stocks like Nestle or Titan, or even something like Bajaj Finance or Finserv. These are normally very common plays and it is cliché to talk about them.
In the case of Titan, these were quarterly number and a guidance which people knew about, but the management came out and straight forward talked about cutting the guidance from 20% to around 11%. It does not hamper the prospects of a company which has been at the forefront of all these businesses. So my view is yes, if you get another 5-7% correction, you should start accumulating Titan if you want to construct a portfolio for the next two-three years.
One quarter can still be a dampener but that can again be used as a trenching out opportunity. We would be buyers in this type of businesses where consumption can remain the centrifugal theme in the market for some time to come.
Today we will have results of Sun Pharma, UPL coming out. What is going to be on your radar?
In pharma, we have been big fans of MNC pharma companies with high market shares, the foreign player doing a lot of capex. It can be companies like Abbott Laboratories or Pfizer or Sanofi. All these companies have done fantastically well, particularly Abbott Laboratories which we have been buying since last one, one and a half years. We see no reason why this trend will not continue.
So, rather than playing the Indian pharma story or the generic story, we have been more active on the MNC pharma side. A sort of recovery was indicated in the numbers of Cipla as well as some other numbers. Probably there is a trend which will bottom out in the generic companies as well. But we are not yet very aggressive buyers over there.
Would you say the pain is in the price and at 7000 plus levels, would you be a buyer in Maruti?
It is a good hold. The price movement in the auto stocks and particularly in Maruti, has been a little far ahead of expectations. The last couple of months have seen a good demand recovery, and not entirely due to the festive season. There were a lot of discounts available before the BS-VI sets in. So, in that sense, the price movement in auto is a little uncomfortable in the shorter term, But then, the correction had been a sort of carnage. It is a good hold at this time.
Let us monitor the auto sales numbers for November and December, where one needs to realise that the festive season demand will be over, but whether the sustainability of a normal course of sales which Maruti used to do last year is achieved or not, will be a key monitorable and already the management is guiding towards lower growth. The stock would react a little bit on that and for that it could be a good hold and after monitoring for the next couple of months, a conclusive call can be taken on Maruti.
When it comes to some of the FMCG majors like HUL and Marico, the commentary is not boding well despite whatever we may be seeing on the stock price. What would be your call on some of the FMCG names?
The market was factoring in a disastrous set of numbers from a lot of companies not only FMCG; but even in some of the blue-eyed boys like paint stocks, the management commentary is not very optimistic. The numbers also disappointed to the extent that the market was expecting, Dabur talked about headwinds which have emerged from the lack of demand or demand being low but the numbers did not show that type of behaviour if you analyse these numbers. The sense here is that FMCGs could still be bought selectively.
If the market needs to go above from here, there is a lot of interest in the consumption related stocks, building material stocks and paints stocks. There is a demand for the top 50-70-80 companies in India. I do not see any reason for people to sell this off if other companies start doing well in these 15-20-25 good businesses and this portfolio probably would do very well over the longer term.