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Real estate majors benefit as investors look for comparatively safer assets: Kunj Bansal, Sarthi Group

A lot of small developers and small land owners have started to sell out to the bigger guys.

ET Now|
Updated: Dec 12, 2019, 11.55 AM IST
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ETMarkets.com
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With the kind of restrictions that RERA imposes on projects and money raising, it is only the bigger guys who are able to handle this market and that is probably the reason DLF is going up, says Kunj Bansal, Partner, MD& CIO, Sarthi Group. Excerpts from an interview with ETNOW.

DLF yesterday touched a 52-week high. How bizarre is this? Real estate is in trouble and India’s biggest real estate company is at a 52-week high? Am I missing something?
Let us go back a bit. We had demonetisation at the end of 2016 and after that, expectedly, one of the biggest negatively affected sector was real estate. If we look at the share price performance of real estate companies in 2017, they were massive outperformers. I missed that completely. I am a complete non-believer in real estate, being an equity guy at the core. The reason is that the whole RERA thing is continuing to force the fact that the real estate market is going to be a market of the biggies.

Consolidation has already started to take place at the lower end. There are a lot of small developers, small land owners and troubled developers who have started to sell out to the bigger guys. And with the kind of restrictions that RERA imposes project wise, money raising wise, it is only the bigger guys who will be able to handle this market and that is probably the reason DLF is going up.

In fact, while it is not a 52-week high, another outperformer in the real estate space has been Godrej Properties.

But at the end of the day, demand has to be there, the transaction has to happen. I will buy your argument on consolidation but what is the market logic in taking the stock to a 52-week high when transaction is not happening?
Despite being in the market for 25 years, I do not have answers to these questions but I will attempt. There are two things here. One is the money coming into the equity market irrespective of the economy. It has to be invested somewhere and people are looking for different asset classes, direct equity, real estate, gold, commodities, oil.

Geographically, there are developed markets, developing markets. Money is looking for an opportunity. The ideal target is a good company bought at reasonably correct valuations and a reasonable timeframe, which has to be as early as possible. Now if that does not happen, then you start moving on to the next set of stocks which is where you say that okay demand is not there and growth will not come in the immediate term but the valuation is there and I am willing to extend my horizon of return. I think that is where part of the money is going into real estate stocks.

Everyone told me that L&T is supposed to go up because it is the proxy on economy and economy is going to pick up. I remember hearing these conversations.
Conversations happen. We are all market participants. We have to keep looking for opportunities. We have to keep finding ways to make or lose money. L&T, of course, has been an underperformer and in a market, there are two kinds of participants; one is the medium-to-long term buy-and-hold investors and two, short-term traders. When you look at the short term, obviously you go by the technicals and by some derivative positions. You go looking for stocks which have not participated in an x-percentage movement of the market or a y-timeframe of the market. That is where L&T was figuring in.

The market moved up broadly 10% from the October lows to November highs and has corrected now. L&T was largely a non-participant in that and that is where market started to look for opportunities which have not participated and as a result might participate; probably, that is where the talk came but the fact remains that on fundamental basis, the order book growth has been lesser than expected and that is the reason. It is not a recent phenomenon.

If you leave aside L&T and move towards the midcap space of infrastructure, capital goods, roads and highways, we have not had broadly consistent performers over a reasonably longer term timeframe of three, four, five, six years. One stock here or there might have given some return, but the whole pack has massively underperformed.

What are you making of all the news from Cabinet? Banks and NBFCs are once again in focus. Do you see the transmission happening sooner rather than later?
Transmission will happen but I am not so hopeful that it will happen sooner. I will probably be in the camp of more later because there is caution all around. Also, my understanding is and that gets confirmed by talking to some people on the road that availability of money or liquidity as generally is considered was never a challenge.

The challenge has been matching the borrowers and lenders. The person who has money has obviously become cautious. He wants to lend only to the top notch rated companies or where he is quite sure that there will be no further default. Now that person anyway does not need money because everybody is willing to lend him. The person who needs money is somebody who is in a little bit of trouble; nobody is willing to lend him and that is where the challenge was coming. Money availability was not an issue.

So for the same reason now, with the government push through the public sector banks, maybe things could improve but it will take time.

Anand Mahindra is very categorically saying that the smiles have returned to the faces of automakers and sales should pick up by definitively the month of April. Do you think April is a prudent time line and him saying rural and the tractors sales would recover is plausible?
You can never ask a barber, if you need a haircut; he obviously says yes. You are right, we have been hearing these kinds of comments and views. One has to live in hope. There may not be a concrete basis to say that growth will pick up, but it is almost four quarters now since we are having a slowdown in the auto sector.

Even two quarters ago, there were comments on how growth will pick up in the next two quarters we will see pick up. It seems that got postponed for further two quarters. Whether the pickup will happen or not I do not know but few factors will emerge. Finally, the changeover to BS-IV will get implemented and people would want to buy new models. By then another crop season will be over. The monsoons have been good this time but got extended to excess side. The festival season has already come and gone. The base effect would be in place. So let us see what happens but to me as of now it looks more like hope than any concrete signs of recovery happening.

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