Real estate sector is suffering from its own issues of high leverage, increasing inventory levels, extreme demand weakness, high compliance etc.
I believe with the reducing purchasing power of people, they will stay away from investing in illiquid asset like real estate, and demand will stay away for a much longer time (2-3 years), till the real estate prices and purchasing power does not match, Sumit Bilgaiyan, Founder of Equity99 said in an interview to Moneycontrol's Sunil Shankar Matkar.
Q: Market corrected for third consecutive week despite several measures taken by the government and RBI. What is the reason and what does the market actually want that can be a game-changer?
One of the major reasons for market falls has been continuous extensions in the lockdown, which is worsening the economic conditions day by day. The fact that the Q1 FY21 results will be extremely weak (more than 40-50 percent decline in revenue YoY) taking the FY21 results for a toss, which will make market valuation much higher, is soaking in the market participants, which is leading to more selling. The relief package announced by the government also failed to impress the market as the majority of it was for liquidity and not a stimulus, the market would prefer stimulus-based measures with a focus on the most affected sectors.
Q: Government announced more than Rs 20 lakh crore package to revive the economy. Have you spotted any new theme(s) which can create wealth?
As the package has been focussed around the MSMEs and making India self-reliant 'Atma Nirbhar Bharat', I believe the sectors where the demand will shift from imports to the local manufacturers will benefit the most, along with industries which will increase their focus on exports. Indians will be encouraged to buy locally made products which will boost the demand for local companies, improving their future demand outlook and returns scenario; thus, creating wealth for the investors in these companies.
Q: Do you think these fiscal measures and RBI move will create more NPA pressure for banks?
Measures by RBI (through moratorium) should help some businesses which are facing temporary cash flow issues and helping them recover. But for those businesses which are permanently hampered, granting of moratorium will lead to postponing the problem. 100 percent credit guarantee scheme should help in reducing bank's risk aversion towards MSMEs but it does not solve the issue of the slowdown. Maybe the current cash flow problem will be solved but there are no measures for demand-side which can help kickstart the economy. No relief has been provided to the most affected sectors- aviation, tourism, restaurants, malls.
Q: US Senate has passed the bill to delist Chinese companies from US stock exchanges. Do you think the war between US and China will intensify further?
I believe the relationship is already sour, the bill further supports the deteriorating situation. Danger to the world, yes, as the United States is no longer the lone demand-side contributor as China has caught up as a very big market for consumption. Supply-side issue is there with China being a major supplier to the world.
Q: What is your advise to first time investor who came in the market with the thought that crisis time is the real opportunity to grab to create wealth in the long term? What should be their focus and what should they avoid?
This is definitely a good time for a new investor to enter as we are near to the bottom (no one knows the bottom but there has been a decent correction from top). New investor should know that a long term is minimum of 5-7 years and not less than that, as new investors think 1-2 years is a long term. They should focus on high-quality largecaps (as they are new investors) which have great corporate governance, good history of growth, high barriers to entry, good future outlook and solid return profiles. They should stay away from companies with high leverage and which has pledged shares.
Q: Do you think 2020 is the really bad year or opportune time for investors to reshuffle or make a fresh portfolio in the current crisis?
India definitely has a huge opportunity with the conflicts arising between the US and China. India is certainly caught at a bad time with financial difficulties (IL&FS, DHFL etc) which further got aggravated with the lockdown. Lockdown impacted manufacturing, consumption, and travel where India was gaining momentum with opportunity shifting from China, increasing population and disposable income, and increasing travel for leisure.
Now, due to the lockdown and demand disruption people have lost jobs, uncertainty had crept in the economic system. Consumption will go down and people might preserve cash. For investors its time to look into the portfolios understanding that there will be a change in consumer behaviour, good time to reshuffle, and focus more on companies providing essential goods and services over discretionary.
Q: Real estate sector barring few stocks has been ignored for a long time now. Do you think it will revive in 2021 especially after measures taken by the government recently and in the past?
Real estate sector is suffering from its own issues of high leverage, increasing inventory levels, extreme demand weakness, high compliance etc. Consolidation has been very clear in this sector, the large will continue to gain market share, and smaller players will continue to face tough times and will eventually contract their business. I believe with the reducing purchasing power of people, they will stay away from investing in illiquid asset like real estate, and demand will stay away for a much longer time (2-3 years), till the real estate prices and purchasing power does not match.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.