One should start looking at realty stocks again: PN Vijay

42424 Investors following HUL. Share this News with them.

0

Like this story, share it with millions of investors on M3

One should start looking at realty stocks again: PN Vijay

The Indian market has been strong over the last couple of days. High beta and complete underdogs sectors have begun to move now. PN Vijay, Portfolio Manager says, one should start looking at the realty stocks again. “One should look at some strong balance sheets as an investment candidate,” he advises.

Post your opinion here

 

0

Tweet

Share on Tumblr

Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets

The Indian market has been strong over the last couple of days. High beta and complete underdogs sectors have begun to move now. PN Vijay, Portfolio Manager says, one should start looking at the realty stocks again. "One should look at some strong balance sheets as an investment candidate," he advises.

According to Vijay, a lot of confidence is coming back into the investment cycle. "One is looking again at getting into some of the beaten down public sector banks," he adds.

Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: Are you still in profit booking mode or do you think it might just be prudent to shelf the caution in the face of such liquidity?

A: I was taken aback by the PMI that we got few days ago. India doing 58.1 was a stunner. I had taken the view that while the rate cycle has changed and that's underpinning a possible bull market, domestic manufacturing and industry would take a bit more time to find its feet.

But if domestic manufacturing is showing a confidence level of more than 58 and service sector confidence is also 58, far higher than China's 50.2, that shows that a lot of confidence is coming back into the investment cycle. So, one had gone a bit more into cash, around the 4,700 level, in December. But now one is looking again at getting into some of the beaten down public sector banks. Increasingly, one is finding that the NPAs are there, but the business growth and the loan growth would probably take that along with it.

Q: In the last two days, we have seen some big rallies in real estate. What would you do with some of the realty stocks now?

A: One should start looking at the realty stocks again, very selectively. They follow the interest rate cycle in India, very correlated to the interest rate cycle. If one went on the assumption that if there is a continuing bull market in India for the next one year, that's going to be led by the RBI cutting CRR and interest rates then one would see demand.

Unfortunately, what is happening is that the Indian real estate developers are not cutting prices. They are going for profits rather than volume. But those who cut prices and who go for volume and shed the excess inventory would be the winner.

It's interesting to see a contra cycle also developing. Mumbai, which was the strongest market right through the back period, is now softening in terms of prices. But Bangalore, Chennai and to some extent NCR region, especially the Gurgaon portion of it, are showing very strong price performance. This means that there will be more liquidity, more cash flow with the real estate developers and more holding power.

One should, at some point in time in the near future, shed one's inhibition about real estate as one had shed inhibitions about banking and auto and look at some strong balance sheets as an investment candidate.

Q: What did you make of Hindustan Unilever 's numbers and the market reaction to them?

A: Hindustan Unilever's numbers were decent. HUL, in this bear market, had run up a lot and was one of the few positives in an otherwise bad 2011. It looks as if HUL is working. They had huge problem on their brands, they have done a lot on their ad spends, they have refocused their target marketing. They are spending a lot of money on specific brands. So, from that point of view, HUL from being a rather poor country cousin of ITC would again try to comeback to not being just a bear market bellwether stock which you move into for safety, but one which can find a more permanent place in your portfolio. Right now, the share has gone up so much that it's a hold. The smart trade is to go into rate sensitive. I would not recommend selling HUL, but just hold on to your profits.

Q: Where do you stand on cement? We have seen some good moves off-late in the cement companies. Would you buy them here?

A: No, I wouldn't buy cement right now, though stocks have performed well. If you see the pricing, it is very demand and supply sensitive commodity; 1-2% differential in demand or supply can make a huge change in the price. We are not seeing these people get the pricing power back because while there is a change in sentiment, there is a change in liquidity in the market and that's getting reflected in the prices, there is no change in the investment cycle as yet.

We are not seeing big investments coming in roads, homes, in other projects. Most of the cement manufacturers have gone in for huge Brownfield expansion. So, the capacity has increased over the last 12-18 months. I don't think these people will have a great pricing power. Among the commodities, I would rather go for sugar and at some point in steel than cement.

Q: Has the time come to start worrying you about crude or do you think partly it's been taken care by the movement in the rupee dollar?

A: I think as global economic activity and growth goes up the demand for crude would go up, though after a rather bad winter the West will come out of it and there will be spring so that demand will go down. But general demand by manufacturing and shipping could go up.

On the other hand, the rupee seems to be settling down remarkably well below 50. It has been the biggest star in this macro change that has happened. Finally, in India, the government manages oil prices on micro basis. If fiscal deficit sees some improvement then we have nothing to worry. So, while the crude price will have a sentiment and announcement effect, I don't think it will affect India's improving macro story.