Shrikant Chouhan, Head of Research (Retail) at Kotak Securities, who has worked in equity & derivatives research space for more than 24 years, feels larger real estate players are likely to expand their footprint as the ongoing consolidation continues to weed out smaller players from the industry.
We believe Bengaluru-based players are better positioned to capitalise on the growth story in the sector. Their favourites are Prestige Estates Projects and Sobha. Mumbai-based players — Lodha and Oberoi — still offer value at current price points, he said in an interview to Moneycontrol’s Sunil Shankar Matkar. Here are edited excerpts from that interview:
Q: After Evergrande-led correction, the market seems to have gained more power that lifted the benchmark indices to a new highs. Do you think it is an expensive market? Can you explain the parameters that say the market is expensive?
Currently, the market is definitely expensive as we expected an earnings per share (EPS) of Rs 715 for the full year 2021-22, however, the market has achieved the target in just 6 months. Based on that, the Nifty should be around 18,180 by the end of March 2022, which is not far from the current level.
Q: Given the market at record high levels with the Nifty50 moving towards 18,000 mark and BSE Sensex at 60,000 levels. What should be the strategy one should follow?
Based on valuation the markets are very close to the higher band of the EPS and price-to-earnings (PE), However, further development in terms of reforms on the domestic front and on the global front will compel analysts to increase or decrease valuation.
With the minor shift inflows from China to emerging markets or to Indian markets then also we would see a further rally in the market. The worries of rising interest rates in the US is now postponed to mid-2022 will also help emerging markets to get fresh inflows.
Q: Realty sector rallied more than 31 percent in last one month. What are key reasons for rally? Do you thing one should be cautious now or one can still invest at current levels? Is it a multibagger story?
The government is taking appropriate measures to help the sector and also if we consider the cyclical pattern of inflation then after the inflation cycle in metals normally see a rally in the real estate sector.
Larger real estate players are likely to expand their footprint as the ongoing consolidation continues to weed out smaller players from the industry. A low interest rate regime leading to improved affordability will continue to fuel sales momentum. The industry’s demand-supply dynamics are well placed against a backdrop of weakening launch activity.
Recovery in development plays, relative to pure annuity investments, will likely lead to stocks trading at a premium to NAVs due to strong business prospects. We believe Bengaluru-based players are better positioned to capitalize on the growth story in the sector and continue to like Prestige Estates Projects and Sobha. Mumbai-based players—Lodha and Oberoi still offer value at current price points.
Q: What is your investment mantra for new investors?
Even at 60,000 our advice for investors is to buy in select stocks (strong companies in terms of managing and growing companies) with a medium to long term view. Most of the time in the market it is proved that the level of the index is just a number and the actual market index is very different from the numbers. However, the buying is advisable in tranches/parts, do not lock your entire funds at current levels.
Q: The rally in the current week was led by Energy, IT, FMCG, and Infra stocks. But banks, auto and Metals were underperformer. What are the sectors to watch out for next week?
We would like to focus on Auto, Technology and select financials to do well in the coming week. The metals remain under pressure until the point of Evergrande is clarified.
Q: What are the levels one can expect on the Nifty on expiry day next week? What does the F&O data indicate?
The market to remain in a broader range of 18,100 on the higher side and 17,500 on the downside. The supports have shifted to 17,500 from 17,000 levels. Investors should look for taking partial profit on those investments where they are making windfall gains or investors may also look for consolidating the portfolio.
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