Do you believe that there is merit in investing in any of the realty companies?
We are very positive on real estate stocks at this point of time. After many years, we are seeing a cycle go on the upside and a lot of the real estate players which are still around, are focussing more on monetising their projects. They are looking at cash flows very closely. Focus is more on affordable housing where sales are brisk at this point of time. As the overall economy picks up especially with IT doing as well and stock markets also moving in the way they are, we are going to see very good demand for residential properties and some of the companies like
in the south; Macrotech, which is a Lodha Group company, in the west and DLF in the north remain our top picks.
All of these companies and especially Macrotech and DLF are sitting on very huge land banks and can develop them as and when the demand arises. These land banks have been acquired at very attractive levels and are not yet captured in their net asset values as of now. So I am very positive on real estate companies and I think real estate as an investment class should do very well over the next three, four years and maybe even longer.
A lot of the challenges in the sector have been ironed out, it is a more organised sector and interest rates are lower. That makes it all the more attractive and there is a great deal of transparency now in the industry and in real estate companies which was not there maybe four, five years ago. Do not go by the PE multiples which they are trading at. Their underlying potential is significantly higher than what they have reported and in the next two, three years, you could see a very good surprise from earnings.
How are you approaching the diagnostic space?
This is another sector we are quite positive on and I think healthcare spending is going to be at centrestage as far as families are concerned and diagnostic and pathology companies will certainly benefit from that particular trend. We like the fact that these companies follow an asset light business model. They are gaining market share at the expense of the unorganised sector.
Although Covid testing will ebb and flow, it will be a standard test which everyone will be required to take every now and then. So, that is a good business opportunity which has opened up for these companies. Although valuations have been on the higher side and we could have a slight disappointment because of the base effect of these companies. By and large, they are great secular growth stories and we could see them easily compounding their earnings by 12-15% for a very long period of time. Having said that, it is best to stick with the market leaders that is Dr Lal Path Lab and Metropolis Labs. They have got the business model perfectly in sync and they are gradually expanding their geographical territory as well and looking at new products, new tests and new opportunities on the M&A side as well as new geographies.
I am very positive about both these companies. My advice would be that wait for the stocks to correct maybe 15-20% from their top because of the overall market correction or stock wise correction. It would be a good entry point and provide some margin of safety.
Where do you stand on private banks?
We were quite positive on IDFC First and
and were hoping that these companies would start to do much better but these results have been very disappointing. I may perhaps review my recommendation or conviction on these companies. But I think ICICI Bank and Axis Bank came up with a very good set of numbers, even better than what we thought would come out from Kotak as well as HDFC Bank. Maybe these are the new flag bearers for the entire banking sector. Also valuations are very attractive for both these companies and value is also getting created in the subsidiaries.
When it comes to private sector banks, go for ICICI Bank and Axis Bank. As for investors who are already invested in HDFC Bank and Kotak Bank, there is no point selling at these levels or doing any switch but fresh incremental inflows should be in ICICI and Axis. At opportune times look at exiting out of IDFC First or RBL.
