Are you excited about riding the momentum in the market or a little worried about the pace and speed of the rally?
Three things are very clear. First of all, a few stocks are moving the market. It is not a widespread rally. Plus, there are positive global cues and the domestic economy is also doing well. Also, it has been a very sharp rally for the last four-five months. Usually, going nearer the expiration of the US options contracts on the second last Thursday-Friday, corrections normally fall between the 18th and 21st and I am expecting the same going ahead, especially since the mutual funds taxation year will be coming to a close in October in the US. We are expecting more sales to come in.
So I would advise caution here. The broad brush is that we have gone through the taper expectation well at Jackson Hole on August 27. How the job report comes in on Friday evening in the US will set the tune for the September 21-22 Fed meeting. The expectation is that in November, they will come out with the time table and in December, taper will start and that will be considered neutral. Starting it before December will be hawkish while any time post December will be seen dovish by the market.
The ECB meeting is next week and not much is expected. They will continue. They are followers of the Fed and will not try to take the lead given where the European economy is. In India, we have been beneficiaries of this well broadcast taper, unlike 2013, where the Nifty had fallen more than 7% when the taper news came out in May 2013.
We have weathered it well but we are sitting at lifetime highs. Momentum can take it further but experience says the market will consolidate here and try to digest this fast growth. In about 20 working days, it has put on 1000 points. I am expecting that the market will consolidate at best and maybe there will be a slight fall over the next two weeks. So a little caution is advised but otherwise, nothing major is looming apart from the taper on the horizon.
Prestige is still up 8%, Sobha is up 5%, Sunteck 1.4%. What are you making of this rally coming in realty?
Real estate has not performed for a very long time and so the cycle is coming. The good news is that the inventory has been going down with the fresh starts in the affordable segment largely. There have been very muted fresh starts over the last one and a half years. The inventory has been going down while the demand is strong and with the housing finance rates coming down, there is natural demand. Plus post Covid, mega trends of suburbanisation is coming in.
People are looking at a bigger house, one more room being funded by people because of the work from home and the school from home routines. We have seen people trying to upgrade as well as the first time buyers looking at settling down on a house for the security of the family. All those things have been aiding the real estate industry.
After the RERA introduction, nearly 4,000 developers went under. They could not afford the new RERA rules and the kind of strict escrowing that the government brought in. So it is formalisation, it is financialisation in the way of housing finance is being made easily available to a wide swath of the population at very affordable rates. So people are looking at EMIs, rather than the total cost of ownership.
It happened with durables about 20 years back. A similar mega trend is coming in for all the beneficiaries of real estate post Covid. I would just caution that go with the players who are not leveraged. Many of the leveraged players have been wiped out. South and the west based real estate companies look much stronger, balance sheet wise and they will benefit. Is it ahead of itself? Yes, you know fundamental analysts always find the markets looking slightly ahead but hopefully this is genuine growth. In the next one and a half-two years, we will see how this growth comes in. But right now, it is all cylinders firing for real estate.
What did you make of ’s acquisition of Exide Life?
The insurance industry has moved into states where it is generating a lot of cash and that cash is finding ways to consolidate the industry. That is the big picture. For a brand like HDFC, I am never in favour of an acquisition because they are the mother brand. Tatas or HDFC are like the mother brands in India and in financial services what better brand can you get than HDFC? The CEO laid out they have found Exide Life value accretive but the market does not seem to like that today. But it looks like a good fit right.
C;early HDFC is a market leader and under the new CEO, they have been digitising a lot and gaining market share on the digital front. They have the home grown advantage of having such a huge in house mega bank as a distributor. This acquisition adds some more cache to them but I think this kind of a huge mother brand really does not need these 1% accretive acquisitions.
I have not worked out the numbers in terms of whether it is a good capital deployment. We will wait for a couple of days to see the ratios and the numbers. It gives a little bit of a boost and locks out some competition for a market leader. Overall, I would say, could you have done better with this Rs 6,000 odd crore rather than buying out a very small, marginal competitor? It is very good for the Exide shareholders. But for HDFC Life, I would like to study a little more.
