- How should an investor approach this year?
- Are tough times ahead for banks and NBFCs?
Samina Nalwala speaks to HDFCSecurities' Unmesh Sharma on 'Talking Point'. #NDTVProfitLive
Guest List:
Unmesh Sharma, Head - Institutional Equities, HDFC Securities
_______________________________________________________
For more videos subscribe to our channel: https://www.youtube.com/@NDTVProfitIndia
Visit NDTV Profit for more news: https://www.ndtvprofit.com/
Don't enter the stock market unaware. Read all Research Reports here: https://www.ndtvprofit.com/research-reports
Follow NDTV Profit here
Twitter: https://twitter.com/NDTVProfitIndia , https://twitter.com/NDTVProfit
LinkedIn: https://www.linkedin.com/company/ndtvprofit
Instagram: https://www.instagram.com/ndtvprofit/
#ndtvprofit #stockmarket #news #ndtv #business #finance #mutualfunds #sharemarket
Share Market News | NDTV Profit LIVE | NDTV Profit LIVE News | Business News LIVE | Finance News | Mutual Funds | Stocks To Buy | Stock Market LIVE News | Stock Market Latest Updates | Sensex Nifty LIVE | Nifty Sensex LIVE
- Are tough times ahead for banks and NBFCs?
Samina Nalwala speaks to HDFCSecurities' Unmesh Sharma on 'Talking Point'. #NDTVProfitLive
Guest List:
Unmesh Sharma, Head - Institutional Equities, HDFC Securities
_______________________________________________________
For more videos subscribe to our channel: https://www.youtube.com/@NDTVProfitIndia
Visit NDTV Profit for more news: https://www.ndtvprofit.com/
Don't enter the stock market unaware. Read all Research Reports here: https://www.ndtvprofit.com/research-reports
Follow NDTV Profit here
Twitter: https://twitter.com/NDTVProfitIndia , https://twitter.com/NDTVProfit
LinkedIn: https://www.linkedin.com/company/ndtvprofit
Instagram: https://www.instagram.com/ndtvprofit/
#ndtvprofit #stockmarket #news #ndtv #business #finance #mutualfunds #sharemarket
Share Market News | NDTV Profit LIVE | NDTV Profit LIVE News | Business News LIVE | Finance News | Mutual Funds | Stocks To Buy | Stock Market LIVE News | Stock Market Latest Updates | Sensex Nifty LIVE | Nifty Sensex LIVE
Category
📺
TVTranscript
00:00 (upbeat music)
00:02 (upbeat music continues)
00:06 (upbeat music continues)
00:09 (upbeat music continues)
00:12 (upbeat music continues)
00:16 (upbeat music continues)
00:19 (upbeat music continues)
00:23 (upbeat music continues)
00:26 (upbeat music continues)
00:29 (upbeat music continues)
00:37 (upbeat music continues)
00:45 (upbeat music continues)
00:53 (upbeat music continues)
00:57 (upbeat music continues)
01:11 (upbeat music continues)
01:22 (upbeat music continues)
01:25 (upbeat music continues)
01:38 (upbeat music continues)
01:49 (upbeat music continues)
01:52 (upbeat music continues)
02:08 (upbeat music continues)
02:12 (upbeat music continues)
02:28 (upbeat music continues)
02:32 (upbeat music continues)
02:43 (upbeat music continues)
02:57 (upbeat music continues)
03:01 (upbeat music continues)
03:14 (upbeat music continues)
03:17 (upbeat music)
03:36 (upbeat music continues)
03:39 - Hello and welcome to Talking Point.
03:46 Joining us today is a very special guest,
03:48 Unmesh Sharma, Head Institutional Securities of HDFC.
03:52 Securities.
03:53 Thanks Unmesh, such a pleasure to have you today joining us.
03:56 I wanna start by keeping 2023 in mind
04:00 because when we started calendar year 2023,
04:03 there was gloom and doom all around.
04:05 There was an impending recession in the US,
04:08 China was a bit of a concern,
04:10 there were geopolitical risks, crude was a worry,
04:13 and the markets, despite all that,
04:15 climbed a wall of worries to make new record highs.
04:18 As we step into an event-heavy 2024
04:22 with elevated valuations and the common statement
04:26 that we say, "Well, the market knows it all."
04:28 How do you feel of this market move
04:30 in this current calendar year?
04:32 Are you as optimistic or is it a corollary of sorts still?
04:36 - So, yeah, so 2023 was actually a tough one for everyone.
04:41 In fact, I remember reading an article very recently
04:44 talking about how more than 80% of the forecasters
04:48 got it wrong and that admittedly included us.
04:52 We had assumed that it's going to be a single digit
04:55 kind of growth market, maybe even on the negative.
04:57 I think the one big positive which emerged through the year
05:02 was actually the strength of the US economy
05:06 and all the benefits which came through with that.
05:10 Having said that, just because that is a call
05:14 which did not play out,
05:18 that does not mean that we are not in a position
05:20 to actually get a much clearer picture of where 2024 goes.
05:24 Now, our base case for 2024 continues to remain
05:28 a little bit of concern.
05:30 Honestly, that is not because there are no positives
05:34 which will come through this year.
05:36 I think what has however happened is that a lot
05:38 of these positives are in the price.
05:41 And especially if you see this breathtaking rally,
05:44 which we think is more of a melt up,
05:47 which happened since December till today,
05:50 whether it was the FBI flows
05:52 or whether it was domestic flows
05:54 and you see the resulting impact on the stocks.
05:57 We think that we have got on valuations
05:59 and in terms of lack of triggers at a point
06:02 where it's not going to be a very smooth ride
06:04 from here for the rest of the year.
06:06 - Mish, I completely agree.
06:08 It's not going to be a smooth ride,
06:10 but I just want to understand from you
06:13 what investors should do,
06:15 because I think it eventually all boils down to that.
06:17 And I know it's not about building a tactical portfolio.
06:20 It's got to be more strategy.
06:21 It's got to be more structural.
06:22 And of course, India structurally is in a bull run,
06:25 which we all believe very strongly.
06:28 October 23rd, when the market started moving up,
06:31 there was some apprehension
06:32 and most people were sitting on the sidelines
06:34 or in some words, were sitting on some dry powder.
06:37 If you missed that rally between October 23rd to,
06:40 of course, up until now, what should investors do?
06:43 If you see a correction, should they load up?
06:45 Should they still sit on cash?
06:47 Is a cash call even recommended at this stage
06:50 when there's so much of euphoria in the markets
06:52 at a broader level?
06:54 - Yeah, so look, yeah, that's the billion dollar question.
06:57 Having said that, okay.
06:59 So let me put it into context.
07:01 This is a typical case of the last leg of the market rally
07:04 for the short term.
07:05 Okay, in that sense, what has happened is that
07:07 the valuations are now at over 20 times on FY25
07:10 on the Nifty level.
07:13 That is not to say that everything is expensive.
07:14 What's happened is that there are pockets
07:16 where valuations are still supportive,
07:18 even with the rally, which is like, for example,
07:20 large banks, IT.
07:22 We do like the OMCs, gas, some pharma names, okay.
07:25 Having said that, what has happened now
07:27 is that there are two legs
07:29 which have led to this rally coming here.
07:31 And understanding why the markets come here
07:33 is actually more important
07:35 to then understand what then happens later.
07:37 The first is that after the election results
07:40 from the states in December,
07:42 there now seems to be a mood amongst the FBIs
07:46 that the election related volatility,
07:50 which was expected in '24 will not happen
07:52 in the sense that markets don't have political views.
07:55 They like stability, okay.
07:57 So that's kind of something that market now believes.
08:01 The second is that oil prices,
08:02 despite all the problems that we have seen
08:04 in the Red Sea and whatnot,
08:06 and geopolitical issues are still below 80 even today.
08:09 And to some extent,
08:10 that is something which has caught people by surprise.
08:14 And then there is the domestic flow of liquidity,
08:19 especially in the mid caps and the small caps.
08:22 Now you put this into context,
08:25 what is sustainable and what is not sustainable, okay.
08:27 Look, FBIs also have other places to be.
08:30 So what happens is that if you're overweight today
08:32 in the Indian market with the market at 21 times on FY25,
08:37 if earnings don't follow through,
08:39 as we have seen strong reactions in the last couple of days
08:42 from some of the bank results as well,
08:44 then there is obviously going to be some despair.
08:46 And so money can be taken off the table
08:48 because it can be reallocated outside the country.
08:51 So from that perspective,
08:52 relying on the fact that continuous FBI flows
08:55 is now a given, given the strong geopolitical situation
08:59 and the twin deficit problem in the country
09:01 is not something that you can take for granted.
09:04 The second, however, part is the important one,
09:06 which is the domestic flows.
09:07 Because what's happening is that that money,
09:09 very similar to what happened in Hong Kong, China
09:12 in 2006 to eight is trapped inside the country.
09:14 It's not so easy to leave the country.
09:16 And if you're playing markets,
09:17 unless you find another way,
09:19 as in either you move that money to fixed deposits
09:21 or you are moving that money to real estate
09:23 or to run your own business,
09:26 that money actually stays within the market.
09:28 And which is why what could happen is that we could see
09:31 this melt up kind of continuing in the small to mid cap.
09:34 Having said that, if you put all this into context,
09:36 what you will realize is that incremental triggers
09:39 are only going to come from one, the May election,
09:42 if there is a positive surprise,
09:44 even though I think a lot of positivity is built in.
09:46 And the second is that individual companies performing
09:49 and giving you results basis,
09:51 which you, the premium multiple sustain.
09:54 And this is where the difficulty happens.
09:56 And which is why what we are saying is that
09:58 the easiest way to play this is to get defensive
10:01 on your portfolio.
10:01 You may miss a few percentage points on the upside,
10:04 but at 21 times, when you are entering the market, okay,
10:08 at least in the short term, you need to be very cognizant
10:10 that either your timeframe has to be so long
10:12 that it goes through all this period and, you know,
10:14 is able to price into more years of earnings,
10:16 which means that you could see a year,
10:18 year and a half of no returns,
10:19 and you should be okay with that.
10:21 Or it could be a staggered approach or the simple way
10:25 is to take some money off the table
10:26 from the small and mid caps, put it into the large caps,
10:29 and then wait out this period
10:30 and in a defensive kind of mode.
10:32 As far as cash is concerned, because sorry to, you know,
10:36 because you made that specific point,
10:37 we don't ever, you know,
10:39 model portfolio go beyond 5% cash.
10:41 And that's not something we recommend to people in any case,
10:44 because finally, you know, markets are,
10:46 you have to participate in the markets
10:49 to make money eventually.
10:49 So from that perspective, I think a defensive stance
10:52 is what you want to be in.
10:53 - And Anmesh, I did hear you mention large cap
10:58 might offer a better risk reward in that sense
11:01 as compared to the broader market.
11:02 So in terms of a portfolio call,
11:04 would you be looking at a market cap focus strategy
11:08 or would it be sector wise focus strategy at this stage?
11:11 - Sector wise with a slight bias for, okay.
11:14 So the bias is towards companies
11:16 which will have lot more robust earnings.
11:20 And we believe and some valuation comfort.
11:24 Okay, so this is the starting point.
11:26 In general, we are not,
11:29 we are model portfolio is market cap agnostic.
11:31 But given the fact that generally,
11:34 because the participation among the FBIs
11:37 was lower than the domestic,
11:40 technically what seems to have happened
11:43 is that there seems to be a valuation differential
11:46 between the, as far as risk reward is concerned,
11:49 between the large and the mid cap.
11:50 So, you know, sectorally, yes.
11:55 But within the sector, the way we are picking stocks
11:58 is to look at where the earnings growth
12:00 is more predictable and robust,
12:01 given where the valuations of the market are.
12:04 And coincidentally, we also find that that is
12:06 because of the technical reason where the large caps are.
12:09 So it's not like we usually don't take a call
12:12 between large cap and mid cap.
12:13 What we do is that we look at earning certainty
12:15 and at this point in time,
12:16 the comfort on valuations as compared to
12:19 the predictability of earnings is largest in the large caps.
12:22 And that is why we are seeing this.
12:23 And, you know, to reiterate,
12:26 banks, information technology, OMCs, gas,
12:30 and pharma is basically where we are seeing
12:33 the most comfort at this point in time.
12:35 - So Mishal, start with IT because, I mean,
12:37 this is a question that's been bothering me
12:39 for a few days now.
12:41 Hope was all around when tech companies reported earnings.
12:44 Now, of course, they had very low expectations.
12:46 So they've performed largely in line.
12:48 Margins are improving.
12:50 Attrition is declining.
12:52 Commentary, we can both argue
12:54 whether it was positive or negative.
12:55 But if I look at history, calendar year 2022,
12:59 when business was booming,
13:00 margins were actually falling
13:01 and attrition was at a multi-year high.
13:04 The current situation is a corollary of exactly that.
13:06 And history has shown that in the last 15 years,
13:09 when tech stocks have done well and business is good,
13:12 margins actually have not done so well.
13:15 Margin improvement has come in largely
13:16 in operational efficiency
13:18 on back of anticipation of a potential slowdown.
13:21 So do you feel like we are missing the woods for the trees
13:25 when you looked at these four IT numbers
13:26 and got so excited?
13:28 - Look, I'll be honest.
13:31 While it was a marginal positive surprise,
13:36 I was also surprised by the quantum of the moves
13:39 in names like Infosys, Wipro, and so on and so forth.
13:42 But what I think is happening here
13:45 is there are three things, okay?
13:47 One is that IT, very interestingly, is a tough one.
13:52 And because the nature of the companies,
13:54 with their move up the ladder,
13:56 especially now that you have cloud
13:59 and more ER and D component to these companies
14:06 is very different from how it was 15 years ago.
14:09 A lot of trends that you see in the past
14:11 are difficult to extrapolate now.
14:14 What is happening, however,
14:17 is that the primary concern was that,
14:21 given the fact that the US and Europe
14:23 is going through doldrums
14:24 and the US Fed is trying to slow down the economy,
14:28 what happens to demand?
14:29 The counter to that, obviously,
14:31 was that discretionary demand to move up cloud
14:33 and all the structural themes,
14:34 which will look beyond these short-term problems, right?
14:38 Now, what's happened is that the stocks were beaten down,
14:40 and with a small amount of outperformance,
14:43 they have been able to deliver significant returns.
14:47 I think that also reiterates the point
14:48 of where we are sitting in the markets,
14:50 which is that small moves can lead to a lot of changes
14:53 in this.
14:54 As far as IT is concerned,
14:58 the way we would play this
14:59 is that we would keep a marginal overweight,
15:01 because we believe that even if we do get into a situation
15:04 where the US slows down,
15:05 the numbers will be broadly robust.
15:07 We believe that.
15:09 The second is attrition is always a good thing
15:11 for this industry.
15:11 I think the slowdown in the startup economy,
15:14 so as to speak, on the private side,
15:18 is something which has led to attrition falling.
15:21 In fact, one of the anecdotes I often tell my clients
15:24 is that the fact that a lot of large companies
15:27 are asking employees to work from office more,
15:32 like four or five days a week,
15:33 is a sign that it is slowly becoming an employer's market.
15:37 Because I think maybe the capital availability
15:42 to the startups has kind of started to slow down,
15:45 and the job market must be contracting, basically.
15:48 So in a sense, that is typically a good thing.
15:52 Stability tends to lead to,
15:53 over a period of maybe two years,
15:55 you will start to see that impact on margins.
15:57 So I think, I'm giving you a lot of data points,
15:59 but broadly what I'm saying is that
16:01 the growth rates of the last decade
16:03 are not something you extrapolate.
16:05 The market is not expecting that.
16:06 On that, we don't expect to see a negative surprise.
16:09 In fact, we may see some positive surprise.
16:11 The slowdown concerns may not play through,
16:13 and the cost will remain under control
16:15 because of these attrition issues.
16:16 So broadly, I think it's not a bad space to be.
16:18 Of course, within IT, we also count,
16:22 in our model portfolio,
16:23 things like IT-related companies,
16:25 like the exchanges, like MCX, for example,
16:27 where we have an overweight position.
16:29 So if you put all that into context,
16:32 we are quite constructive on this.
16:33 - So largely tech players.
16:34 Unmesh, I'll just add to that.
16:36 We saw those large four players reporting numbers.
16:39 Any buy calls in the big four that reported earnings,
16:42 and also in the broader market space,
16:44 any preferences in the IT players?
16:46 - We have, in our model portfolio,
16:48 we have an overweight position on Infosys
16:51 and HCL technologies at this point in time.
16:53 LTI, Monterey is the other one.
16:56 And the tech-related players, we have MCX.
16:59 Basically, these are the ones which,
17:01 as a house, we are promoting.
17:04 Broadly, you will see they are also fairly good
17:06 on terms of earnings delivery.
17:08 You know, the worst is behind them.
17:10 And generally, I think valuations are okay.
17:12 - So Infi, HCL Tech, LTI, Monterey, and MCX
17:15 are the three stocks that are part
17:17 of Unmesh's model portfolio.
17:19 We'll take a quick break.
17:20 We'll come back.
17:21 Unmesh, stay with us,
17:22 and we'll continue our conversations, so stay tuned.
17:24 (upbeat music)
17:27 (upbeat music)
17:30 (upbeat music)
17:32 (upbeat music)
17:35 (upbeat music)
17:40 (upbeat music)
17:43 (upbeat music)
17:51 (upbeat music)
17:58 (upbeat music)
18:08 (upbeat music)
18:11 (upbeat music)
18:19 (upbeat music)
18:26 (upbeat music)
18:37 (upbeat music)
18:40 (upbeat music)
18:48 (upbeat music)
18:56 (upbeat music)
19:04 (upbeat music)
19:06 (upbeat music)
19:15 (upbeat music)
19:23 (upbeat music)
19:33 (upbeat music)
19:36 (upbeat music)
19:44 - Welcome back.
19:53 You're watching Talking Point.
19:54 We're in an exclusive chat with Unmesh of HTC Securities.
19:58 Unmesh, you also mentioned to me that pharma
20:00 is something that is a sector you're overweight on.
20:03 In this pharma space,
20:05 are you more positive on the domestic branded players?
20:08 So, you know, companies like diagnostic chains,
20:10 hospitals, or more export-focused companies.
20:13 I know that there is not too much pricing pressure.
20:15 Last quarter, the earnings were also pretty impressive,
20:17 and the sector as whole has done well.
20:19 So where would you place your bets,
20:21 domestic branded players or players with an export piece?
20:24 - So look, there are two things.
20:28 One is, you know, I'll have to unfortunately warn you
20:31 that as of right now, because of a change in analyst,
20:34 we actually have all these stocks under review.
20:37 So I can't go stock specific,
20:39 but what we do have right now is a 200 bits overweight
20:43 on the whole pharma patch.
20:44 And generally what you will find is that actually,
20:47 on there doesn't seem to be too much comfort
20:49 on the domestic healthcare names.
20:52 Even though we like these companies,
20:53 a lot of them are ads,
20:54 but we don't have them in the model portfolio
20:56 because of lack of comfort on the valuation piece.
20:59 And there is a mix of large caps,
21:02 our largest overpaid being Alchem and Cipla
21:05 at this point in time.
21:07 - Hi, and how can I not talk to you
21:09 about banks on a day like today?
21:10 We had numbers that came from HDFC Bank.
21:14 Market seems a little too disappointed.
21:16 Deposits haven't grown,
21:17 and it seems like it's not just a problem with HDFC Bank,
21:20 but this could be a problem persistent
21:22 for most of the private banks in this quarter.
21:25 We will of course find out
21:26 as we progress with the earning season,
21:29 but what is the approach on banks?
21:31 Valuations are compelling.
21:32 These are solid banks.
21:34 You know, the management commentary
21:36 may or may not be able to be blamed,
21:38 but how do you feel about the banking space?
21:40 Because you did say you're optimistic,
21:41 and if you are, how do you, I mean, what are the picks?
21:44 Is it the large private sector banks?
21:46 Is it the PSU banks?
21:47 And I'm gonna throw in another angle here
21:50 of capital market players, right?
21:51 So your non-lending companies,
21:54 like an Angel One, Anand Rati, ICICI Securities,
21:56 which will be merged soon, JM Financial.
21:59 So how does one approach the banking space as a whole?
22:01 Because there's so much happening.
22:04 - Okay, so look, let me start with a disclaimer
22:07 that because I work for HDFC,
22:09 I won't be able to comment on any specifics on the company.
22:13 Having said that, what I can say is that
22:17 very similar to what happened in IT,
22:20 a slight move in one direction on commentary
22:24 has led to a very significant move on the stock price.
22:29 And that is something now is,
22:31 even with valuations at 21 times on the market,
22:33 this is to be expected.
22:34 And which is why we keep saying that,
22:37 robust earnings delivery is the most important criteria
22:39 to buy stocks, so that's one.
22:41 Second being, what is the read through for the others?
22:44 Okay, and that is where I think,
22:46 okay, let me put it in this way,
22:49 which is what compliance allows me to say,
22:51 is that why is the market reacting in this way to this?
22:56 The most important was that it just goes to show
23:00 how tough the deposit environment is.
23:02 And at the end of the day, if you extend that argument,
23:08 if HDFC Bank, which is well known to have
23:12 a phenomenal execution and state,
23:16 deposit taking machinery is in a position
23:20 of this type of deposit growth,
23:21 then can the second tier banks be in a position
23:26 to not either lose margins or market share
23:29 in this kind of environment?
23:31 What does that then do to the growth outlook
23:35 from a 12 to 18 month perspective?
23:37 And that is something that is quite scary,
23:40 because if you, and to some extent,
23:44 given how aggressive SBI is in the deposit taking market
23:48 at this point in time,
23:49 which is anecdotally proved to be true.
23:51 So with the largest bank on the street
23:55 in terms of physical presence, SBI aggressive,
23:59 and with this type of numbers coming through,
24:01 what that effectively means is that
24:03 the systemic growth concern will come,
24:06 which means that the smaller banks will suffer more
24:09 if this is what has happened to HDFC Bank.
24:12 So that kind of reconfirms our view
24:15 that the larger banks will be okay.
24:17 So while the bad news may have been broken by a large bank,
24:20 we believe that, and maybe it may not happen this quarter,
24:22 but what will end up happening is that
24:24 the outlook for the next couple of quarters
24:26 will become bleak, and which is why you can see
24:28 that the banks are under pressure in general.
24:30 And on top of that is this whole question
24:34 about what happens when rates start to fall
24:36 with an unprecedented amount of loans
24:38 now linked to the report.
24:42 Unlike before where the transmission of rates
24:45 was not as efficient as what it is today,
24:46 and all credit to the RBI for that.
24:49 So you put all this into context,
24:50 the point is that the smaller banks, NBFCs,
24:55 and obviously bottom of the chain being the fintechs,
24:58 which are basically going to do lending,
25:00 the cost, what happens to their cost,
25:02 and if the growth is going to get constrained,
25:04 and what happens to relative market shares,
25:06 generally, this is an environment
25:07 which is better for the larger banks
25:09 as compared to the smaller banks fundamentally.
25:11 On top of that is this entire thing about the FBA flows,
25:14 which I was talking about, and the relative valuations.
25:16 So yes, stocks have fallen,
25:19 but at the same point in time,
25:21 if you're running a portfolio,
25:22 which is very heavy on the small and mid caps,
25:24 this is the time to kind of move into that.
25:27 Does that protect your portfolio returns?
25:29 In an environment, the way in which
25:30 I'm talking about the market,
25:31 there is a possibility that we may see
25:33 negative returns for a few months.
25:35 In that context, also, this is a right call to take,
25:38 because it kind of protects your portfolio
25:40 in case of a downside, and if you are wrong,
25:42 and the market goes up, you will capture
25:43 most of the upside and the large caps.
25:45 And that is probably how we look at this.
25:48 So if you look at our model portfolio,
25:49 of course, we can't talk about HGFC Bank,
25:51 but we are broadly, you know,
25:55 state bank is there, Axis is there as an overweight,
25:58 and amongst the smaller ones,
26:00 again, you know, amongst the smaller banks,
26:02 the best deposit taking franchise
26:04 being federal is there.
26:06 So, and then of course, we like the life insurance names,
26:10 which is another way to pay financials,
26:12 even though they are not banks or lenders.
26:14 And capital markets, we have an overweight position.
26:18 We don't cover all the stocks that you mentioned,
26:22 but at the same point in time, we are quite positive
26:24 because we believe market participation is a theme
26:27 which is structurally going to continue
26:29 for a long period of time,
26:30 and that we are very excited about.
26:34 - Dinesh, one quick sector that I want to talk about
26:36 and its ancillaries as well,
26:37 because we will manage to cover
26:39 all a few of the smaller spaces is real estate.
26:42 Does this look overbought to you
26:43 after an 81% surge in 2023?
26:46 It seems like the space has seen a change of fortunes
26:49 to say the least.
26:50 Usually and historically, again, real estate prices,
26:54 real estate as an industry,
26:57 really follows a very robust equity market,
27:00 and is always a sign of the equity markets topping up.
27:03 Do you agree?
27:04 And if that is something that we're thinking,
27:07 then what's the outlook on real estate
27:08 and the ancillaries as well?
27:09 So maybe a cement, paints, infrastructure,
27:12 everything else that goes into it.
27:14 - Okay, so look, and don't get me wrong,
27:17 but this link between the real estate and the cycle
27:22 and this, the equity cycle, so as to speak,
27:26 is to a large extent, a very strong Bombay bias,
27:31 if I may call it that.
27:33 There is actually, India real estate,
27:38 and I used to cover real estate myself as an analyst
27:40 back in 2006, seven up to 12.
27:44 And what I think, I've been observing what's happening,
27:48 and this is also globally.
27:50 The first is that the equity cycle is a lot shorter
27:54 than the real estate cycle.
27:55 The real estate cycle tends to long
27:56 for very long periods of time.
27:58 And real estate cycle starts with a lot of despair,
28:01 first moves up on discounting,
28:03 then moves up on volumes as the economy progresses.
28:06 And then finally, it ends with a longish
28:10 kind of price cycle, which is where,
28:13 and now if you look at the way in which real estate stocks
28:15 are valued, even though, EV per sales,
28:19 or EV per pre-sales and all that,
28:21 but broadly the valuation is determined
28:23 by what is the NAV of the companies, right?
28:25 Which is the asset value in the company.
28:27 If you look at the asset values,
28:28 the most amount of money is made when the prices go up,
28:31 because all of that is pure EBITDA.
28:32 It just flows straight down to the bottom line.
28:34 At this moment in time, we are actually in probably
28:37 the early part of the second phase of this cycle,
28:39 which means that you've gone from despair
28:42 to normalization of volumes.
28:45 In terms of the volumes, pick up from normal levels
28:48 to abnormal levels is something where we are early stages
28:51 of seeing, and then you will see the price cycle,
28:53 which is where then the volumes start to dip,
28:55 and then that's when the market starts to get concerned
28:57 as to what happens.
28:58 And, but at the same point in time,
29:00 that is where peak valuations come through
29:01 and the premiums come.
29:03 At this point in time, we are far away from that.
29:04 So if you look at it from the context of the 10-year cycle,
29:07 of course, that is not to say that stocks will go up
29:09 in a straight line with that.
29:09 Of course, they will follow the market cycle,
29:12 but structurally, there is a lot of legs
29:14 in the real estate cycle.
29:15 It's one of the key driving forces of the economy
29:17 at this point in time, and the cleanup using RERA
29:20 and GST and all this has really created the base to do this.
29:25 Within this, we are most constructive on residential.
29:28 Our model portfolio has a 200 bps overweight on SOVA,
29:32 which is also one of our three key ideas for the year.
29:34 I know that stocks gone up since we announced
29:36 that this is one of our key ideas,
29:38 but we still continue to remain positive on this name.
29:41 We also have other buys in the name,
29:44 which Parikshit, our analyst has talked about.
29:46 But broadly, we believe that real estate itself
29:50 needs to be played.
29:51 The ancillaries also we are positive on.
29:53 So cement especially is a stock while cement
29:56 and building materials, we club it together.
29:58 So we have an overweight on JK Lakshmi Somani,
30:01 we have an equalish kind of weight on Dalmia Bharat.
30:06 Oh no, actually it's an overweight on Dalmia Bharat.
30:09 And that's basically what it is.
30:13 - Wow, Manmesh, it was so good talking to you.
30:15 Hopefully try and catch you for a longish interview
30:18 sometime soon.
30:20 We're completely out of time on that note.
30:22 We'll slip into break.
30:23 We'll come back FNO spotlight,
30:25 FNO star show on the other side.
30:27 So stay tuned.
30:28 (upbeat music)
30:31 (upbeat music)
30:33 (upbeat music)