Betting on these 5 stocks in realty and cement sectors: Siddhartha Khemka – Economic Times

Our preferred picks within the real estate space from our coverage stocks universe are Macrotech followed by Oberoi Realty, says Siddhartha Khemka, Head of Retail Research, MOFSL.Is there merit in a higher allocation to Kotak and HDFC Bank given their underperformance year to date and in the previous year as well? Do you think they have a higher chance at a better recovery?The private banking space in the December quarter has reported a strong growth in net profit of almost 35% with loan growth picking up on a quarter on quarter basis. That was driven by the corporate portfolios. In the private space, Kotak Mahindra Bank and HDFC Bank had underperformed the larger corporate banks like ICICI Bank, SBI and Axis Bank for quite a long time.

If you look at the overall market structure, there is some kind of rotation. We have seen some kind of fatigue coming into the stocks like ICICI and SBI which ran up sharply over the last one-one and a half years. Incrementally people are looking at Kotak and HDFC Bank with respect to improvement in growth, improvement in their financial numbers and comparing that with the valuation comfort that they are providing. Nonetheless, our view still remains that one should overall look at the large corporate banks like ICICI Bank and SBI, which would remain our top picks despite the kind of interest that we are seeing in HDFC and Kotak.

What is the outlook when it comes to the open up trade? Do you believe that after being plagued by the Covid crisis for quite some time, as things are returning to normalcy, there is quite a bit of potential be it hotel stocks, aviation, multiplex stocks, restaurants and the like?If you look at the reopening trade that we have seen last year as well post the pandemic getting over and the restrictions being gradually easing off, there is a rush towards these kinds of sectors as they have been badly hit at the times of the lockdowns and restrictions. But again, one cannot take a blanket approach towards these players sectors like aviation, although opening up of the international routes is positive.

On the other side, we have currency as well as the crude oil price headwinds and one needs to be selective. Multiplexes are definitely looking good. Some of the other leisure entertainment space, travel segments are definitely worth looking at at this current juncture, especially as globally, there are countries which are saying that now Covid is no longer a pandemic and is a normal course of disease which one needs to get through.

The restrictions of the tests are being removed from a lot of countries as well. In India also, domestic travel no longer needs to show test certificates and all those things. It is a positive development for the sectors which have been impacted pretty heavily in the last two years, if we do not see any return of the Covid restrictions, these companies will do well but one needs to be very selective in the broader unlocking theme.

Do you believe the time is right now for a lot of these real estate counters which had come under acute pressure now to see a decisive bounce back?On the overall real estate pack, we have been quite positive for the last couple of months. Last year, there has been a huge increase in demand especially on the residential side and that has helped the large real estate players to clear off the inventories, improve cash flows and some of them have even raised cash from the market to strengthen their balance sheet going forward.

Real estate stocks like Sobha, Oberoi Realty, Prestige Estates are still holding on to gains of around 4% to 5%. Would you like to play this theme with the real estate stocks itself or would you like to broaden it a bit to get into the building material or the plywoods or the pipes. of the world?If you look at the overall real estate space, the cycle is turning after almost 10-12 years and in the previous cycle, there were a lot of unorganised players. In the last 10 years, we have seen consolidation with smaller players getting out or getting merged with larger players. The regulatory environment has improved a lot be it RERA, be it the GST. , that has only helped the larger organised nationalised players to gain market share and finally post pandemic because of the lower interest rates and the resultant improvement in demand.

People are spending more time at home, requiring larger homes and we see that the overall real estate cycle is improving and just starting off. Our preferred players would be to play directly with the real estate companies. The balance sheets have improved over the last couple of years. The inventory levels have come down and that makes them pretty attractive at this current juncture.

Our preferred picks within the real estate space from our coverage stocks universe are Macrotech followed by Oberoi Realty. To play the real estate indirectly, we like the cement sector which is also a play on infrastructure spend. We recently had the Budget where the capex theme from the government continued for the second year in a row. We believe that cement is facing several headwinds in terms of a little bit of demand slowdown as well as higher raw material cost leading to margin pressure. But this space can benefit from the growth and increasing demand in the real estate and infra space. We like UltraTech among largecap names and JK Cement and Birla Corp within the midcap space.

When it comes to the cement basket, there are concerns regarding supply as well as cost. Do you think it has already been factored into the price?The overall cement space has faced major headwinds on the cost inflation side and that has impacted margins. The overall trend, the longer term view that we have is that some of these cost pressures as well as lower volumes are already there in the price. For this year, the Budget is capex friendly. We have got the first monsoon estimates from Skymet which is again positive.

The rural segment has been subdued and has impacted not only cement but a lot of other sectors like two-wheelers, tractors and FMCG space and is also having an impact on the cement sector. But with the kind of spending and now with the elections in some of these larger states getting over, the demand should recover and that should help the space come back on its feet.

They have been unable to take price hikes but that should follow with the construction season beginning and improving demand from the real estate and infra space. A lot is already there in the price and one should look selectively at some of the cement stocks like UltraTech which is our top pick in the large cap space and JK Cement and Birla Corp in the midcap space.

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Betting on these 5 stocks in realty and cement sectors: Siddhartha Khemka - Economic Times