Macrotech, formally called Lodha Developers, has raised Rs 4,000 crore via QIP. This only solidifies the comeback of the property market. Can this start the trend of real estate companies looking at fundraisers as buyers come back to the market?
In general, the real estate space is experiencing better times. Given the situation in which the metros are operating currently, the residential real estate inventory levels are practically on a per use basis now. Obviously, there is no surplus inventory left in most of the pockets. Given that kind of a situation, the residential properties demand would probably sustain going forward. Also, as the cost of funds for buyers is significantly less and given the rise of working from home or working from anywhere, there is rising demand and real estate will be equipped to handle this kind of a situation in future as well.
There is demand for larger houses as well, as a result of which, companies like Macrotech will probably have greater scope going forward. The QIP means balance sheet restructuring is also being done including retiring of debt. At the same time, investing into newer constructions which is now the order of the day. So real estate as a space looks far more convincing than ever before as far as growth is concerned and most importantly, land prices are not surging as much and the construction cost is still factored in. Stable prices are increasing the demand and so I remain positive in this particular space.
Do you believe that construction in realty ancillaries are bound to do well? Most of the construction stocks have had a fair amount of time wise correction as things began to open up there. There is also a fair amount of unsold inventory in ancillaries like Havells, the Asian Paints etc. Sanitaryware companies perhaps are also bound to do well?
This is the one space which is going to be a direct beneficiary of what is happening in the real estate space even though commercial real estate is not still showing a complete turnaround. But in commercial real estate, per use kind of a mechanism has already started and that is where we are likely to see growth instead of ownership. In commercial real estate, users are going to be paying for the use of commercial real estate. The advantage here would be that the prices of commercial real estate would remain fairly stable, while the residential real estate space is already blooming.
The material space which is supplying about 450 different industries is also going to be in demand. The real challenge in the material space including cement and even paints is that everywhere commodity and energy prices have gone up. As a result, the cost of construction has probably increased and that could pose a threat to a certain extent if not fully.
As far as the demand for tech is concerned, that could be a smaller one to handle. The cost of material is a challenge but these companies are having relatively better times. Most of them are echoing the sentiments that there is huge demand on one side. In fact, there is a waiting period of 45 to 60 days for delivery of materials. The demand scenario thus is quite strong on the material supply side in constructions.
InfoEdge is one of the biggest winners of 2021. Zomato and Policybazaar IPOs have been great successes. Both are portfolio companies of InfoEdge. They are also continuing to invest in new start-ups. What is your assessment of the stock?
The company has been investing and putting money into start-ups, nurturing them for over five to seven years and then monetising those companies. It is a typical equivalent of a startup fund, but in a listed market space, where one is getting the opportunity to buy into some of the emerging companies which are going to be unicorns of the future. Over the last few years, they have nurtured some of the investments which are getting monetised now.
Do we have the clarity for the next few years as far as monetisation of the existing portfolio of investment is concerned? I guess they would eventually get monetised but I am not too sure in the given time period. Zomato and Policybazaar listings happened in quick succession over six months, but whether a similar approach would continue for the next few companies, I am not too sure. As of now, valuation wise, there are no arguments on this subject. It is beyond understanding but the fact remains that the potential is high. One would like to hold on to if one has invested. Otherwise, there will be opportunity during the time wise correction in the market.
In this time-wise consolidation/correction within the banking universe, would you attempt at buying any of the dips or underperformance for that matter?
Yes absolutely. In fact, this is one sector where I remain extremely convinced and positive because of few facts. On one hand, the retail consumption of products is increasing and as a result the offtake of retail credit is also significantly higher. In fact, the last quarterly earning results of the NBFCs have reported 17% growth in the retail sector.
As a result, we are seeing that some of the corporate banks are highly focussed on retail. The likes of ICICI are seeing a higher amount of retail credit offtake. Along with that, new infrastructure projects are being rolled out. The greenfield projects are going to demand a higher amount of credits which up till now have been muted. Last but not the least, some of the larger banks, public sector banks who have been having the ability to lend but could not do so because of the non-performing asset related issues which are now going off the way.
Recently we heard from SBI and we also heard from BoB that the NPAs are behind them now and they are likely to see a larger ability to lend. All in all, credit on one side, the corporate credit on the other side and also the infrastructure lending by some of the larger banks all in all put together are likely to drive the credit growth into the system and that is where I believe that better times ahead for banking space as a whole. Of course, one will have to be more selective in buying into the stocks, largely the ones which are managing the liability side well.
The banking space is worth looking at, given the kind of correction in prices and sideways movement. One could look out for 20-25% kind of appreciation if one buys at a lower level in the banking space.
