Here are some fundamental ideas from Prakash Diwan

In an interview to CNBC-TV18's Latha Venkatesh, Sonia Shenoy, and Anuj Singhal, Prakash Diwan of Altamount Capital Management shared his readings and outlook on market and specific stocks.

Below is the verbatim transcript of the interview.

Sonia: The stock that everyone is going to look at today is Gruh Finance because of such solid numbers that the company has posted. Do you like that and anything else in this space?

A: First and foremost disclosure is that I have a long-term position in this since long time. However, why suddenly Gruh has started looking better is because in this huge run up on housing finance companies (HFCs), we have not seen Gruh participate with that full fervor that LIC Housing, Can Fin Homes, or Dewan Housing Finance (DHFL) has done. So, from that perspective, there is a little bit of a catch up steam that could be left. However, this whole HFC theme is predicated on the affordable housing fillip that everybody is kind of counting on and betting on.

However, if you see the subvention schemes, they are fairly complex. In terms of utilisation or translation into real benefit to end user, the channel checks we have done is that it is still taking time for people to come to the table and say okay this is where I take advantage of it and I want a loan where I take this benefit. So, this affordable housing thing in pockets is going to be attractive for people, not across the board. It is not going to change things in the listed space that is for sure.

It is not as big as yet. It could and the government will also probably realise and they will need to modify that to make it more practicable. It is not something that is translating into more housing loans or people flocking to the HFCs. Gruh Finance has an advantage that great pedigree, great market segment, we all know the numbers and everything, but it is probably likely to play a bit of a catch up. So, that is the only thing.

However, I won’t recommend a buy at this stage. With these valuations you don’t have some major trigger unless what happened to Indiabulls Real Estate yesterday. At times logic doesn’t really work when you just look at pure numbers, it is a lot of promise and a lot of hope in terms of what things can be done differently, but I believe it is just that it is a validation of the fact that Gruh is a great company. However, from here on, more returns? I doubt. It is not going to be a scorcher of sorts.

Latha: Real estate stocks, yesterday on the excuse of an Indiabulls everything was moving, but they have been moving for some time now. Is there anything that you will clamber on to at this level or anything we should definitely avoid?

A: What is interesting about real estate is that there could be a pickup on the ground with Real Estate Regulatory Authority (RERA) and all coming in, with much more clarity in terms of what you can sell, what you can put together, construct, there is going to be a huge change in terms of shift in terms of market shares. A lot of these players which are benefitting from changes in the rules in the environment itself are unlisted. So, if you look at a Kolte Patil, see the run that has happened in the last six months, it is spectacular. However, if you ask them inventory sales, there is really nothing which kind of backs that u. I am talking about the smaller tier-II, tier-III players.

What I feel is going to happen is the efficiency levels will have to change in the real estate space, in the development aspect of the real estate business and that means they will have to start outsourcing to very well established players. There is a company called Vascon Engineers. I keep on going back to this every time this happens. Vascon is purely into EPC related to real estate as well as certain utilities. It is a great company, decent book value.

They made a mistake couple of years back by becoming developers themselves. They created a land bank and that brought them down. That was a drag, the debt was too difficult to kind of manage. However, this is a company that has done work for Larsen and Toubro (L&T), Oberoi Realty, the big guys. So, this is where the benefit is going to happen irrespective of what happens on the real estate side. However, if I were to pick one real estate company, it would be Godrej Properties.

Anuj: From here on in the overall midcap market, do you get a sense that things are getting heated up and there could be some big correction? From traders point of view, is it time to get cautious or do you think there are still enough stocks where you will continue to see action?

A: The midcap universe I think is slightly wider and what is happening is newer names are kind of joining the bandwagon. People have kind of started digging out, people actually keep on calling me up also and saying give us a name that we have not heard of irrespective of how the fundamentals are. That variety or the newness of the name is taking precedence over fundamentals. So, that is a dangerous sign.

The only thing is that when everybody feels that there is too much froth, you need to be cautious, market does not correct. Market corrects when everybody loses that sense of caution, sense of warning, and everybody says nothing is going to happen, you just go ahead and buy. That I think is yet to happen, but any trigger from a geopolitical angle or any changes in foreign currency kind of relationship between China and the US, and anything on that matter could probably impact us, but right now it is only earnings that I would look at to see if there is any trigger.

For full interview, watch accompanying videos.