Daily Voice | Focus on Tier 2 and Tier 3 real estate, market resilience ahead of Indian elections: Alpha Capital's Ajay Agarwal

Ajay Agarwal is the associate partner of Alpha Capital.

Ajay Agarwal, the associate partner of Alpha Capital, expressed optimism regarding the real estate sector in Tier 2 and Tier 3 cities, in an interview with Moneycontrol. He and his team anticipate that the returns, when measured in terms of percentages, will significantly outperform those in larger cities.

Moreover, with the Indian elections scheduled to commence next month, he believes that the forthcoming elections will have a limited influence on the market's performance.

Markets exhibited bearish tendencies on three prior occasions during election run-ups. The years 1995 and 1998 witnessed this due to a precarious political landscape, while 2008 was affected by the global financial crisis. Ajay, with nearly two decades of experience spanning the banking, wealth management, e-commerce, and commodity sectors, reassures, 'Currently, we do not perceive any similar risks to the indices.

Q: Is it the time to go overweight in the real estate space?

Real estate space over the years has grown and matured with a lot more products to invest in. Earlier it just used to be either a residence or a shop. Now you have financial products like REITs, Factional investing, NCDs, AIFs and many more.

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Ajay Agarwal

Associate Partner|Alpha Capital

Should we go Overweight? Yes if it's land, as Mark Twain once said, “Buy land, they don’t manufacture it anymore.” Real estate projects whether residential or commercial or industrial need to be carefully analysed.

We are more optimistic about the real estate sector in Tier 2 and Tier 3 cities. We believe the returns in percentage terms would be much better in smaller cities than in bigger ones.

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Q: Your thoughts on the fertiliser sector..

India happens to be the second biggest consumer of fertiliser in the world. It also happens to enjoy a high amount of government subsidies. This sector is expected to grow at the rate of 5-6 percent in the coming years.

Fertiliser stocks are currently running close to their all-time highs except for a few. Low growth rate and high prices do not make this sector attractive for investments.

Q: Is the banking sector looking attractive in terms of valuations after the recent correction?

Currently, the private banks are trading at an average PE of 16 and public sector banks are trading at a PE of 7. They are currently trading at a discount of 25 percent to their last 10-year average PE levels. The valuations certainly look attractive.

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We are also positive on the industry outlook for the sector.

Q: Are you worried about the equity markets while looking at global factors including geopolitical tensions?

When the news of the Israel-Hamas conflict came. Markets fell on day one and recovered the day after. I think markets realise that there is very little that can be done about geopolitical factors.

In the current scenario, we do not see that as a threat. However, if it escalates then the impact certainly won't be positive.

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Q: Do you think the elections in five states will be a key factor to watch out for ahead of general elections?

We do not feel the upcoming elections will have a significant impact on the market performance. Domestic inflows are very strong and are increasing month-on-month. FII inflows have not been that encouraging in the last few months, however past evidence suggests that FII flows react positively in the run-up to and post-election rally.

Markets behaved negatively in 3 instances previously in the run-up to elections. 1995 & 1998 were due to unstable political scenarios and 2008 was due to the global financial crisis. We don’t see any such threat to indices as of now.

Q: Can the auto sector surprise the street with its Q2FY24 earnings?

Auto companies have performed well recently with the Nifty Auto index giving 30 percent returns in YTD. Nifty50 recorded the highest earnings growth in the last eight quarters fuelled by sectors such as banking and Auto.

The electric vehicle (EV) sector is looking encouraging with registrations increasing by 700 percent from 2020 levels. We can expect some pleasant surprises from the EV space, however, the auto sector overall is likely to deliver on excepted lines.

Q: Do you think the CPI inflation can fall below the 4 percent mark set by the RBI, in coming quarters? IMF forecasts India's inflation at 5.5 percent in FY24 and 4.6 percent in FY25.

September data for retail inflation dropped to 5.02 percent, a significant decrease and much lower than the market estimate of 5.5 percent. It is currently in the target range of 2-6 percent for RBI. We, however, do not expect it to fall below 4 percent. It would hover in the range of 5 percent approximately for the coming months.

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