On opportunities within cement sector
There is a strong tailwind in cement and the second quarter was kind of an eye opener. We all know during the monsoon season, there is less demand but in spite of that, cement companies were able to take price hikes and sustain. Now that the cost pressures are easing, margin improvement possibility on the back of higher per bag price could be a reality in Q3. The demand is strong and will continue to remain strong.
As far as specific counters are concerned, we like the usual names such as UltraTech on the largecap side. It has moved up quite a bit and so buying UltraTech on the dips is the right thing to do. As far as midcap cement is concerned, there are multiple companies and most of them are going to do well. We like companies having presence in the central and eastern part of the country. Star Cement is one company which we like. It has fallen compared to the larger peers but it has got a good market share in northeast and northern Bengal and it has got a good potential for further price hikes from current levels.
We like JK Lakshmi Cement apart from JK Cement which can also be looked at current levels. Birla Corp continues to remain a favourite even at current levels. These are some of the picks which we have but as I mentioned, the entire sector looks good.
It looks like real estate demand is firm and is here to stay. Can one add or take fresh positions in any of the reality names?
Some of the real estate companies are definitely good. They have a clean balance sheet and they have done pretty well. Your point on real estate demand is absolutely correct. But in order to play this, one has to be a little opportunistic because some of the names like Oberoi Realty, Godrej Properties and all can be bought any time. They are at an elevated valuation but if you are a long-term investor, you will make money.
They are doing well. But if you are a bit aggressive, I will probably prefer buying into DLF. I think this is one stock which has still not really moved up. They have moved up but not to the extent the peers have moved up. There is a lot of traction in Delhi as well and they are sitting on a lot of interesting opportunities which over a period of time they can definitely cash.
DLF is one stock which I will recommend at this stage. The other way to play the housing boom or demand for real estate is housing finance, and you started with that. So my theory is probably it will be better to play through the housing finance route and you can go ahead and buy an HDFC or a Can Fin Homes. We like both HDFC as well as Can Fin Homes and both can be bought. HDFC, of course, is the leader. There is absolutely no harm in buying HDFC Limited and Can Fin Home for specific reasons that valuation-wise it looks very interesting. They have a predominantly retail book and the growth opportunities in their chosen markets are significant.
Have you bought a banking stock in the last 12 months?
I have and I have been recommending it for the last few months. I strongly believe that BFSI is ripe for a turnaround and we have seen that happening. We have seen how the banks have performed. Forget for a minute the stock market, ICICI Bank, SBI, Axis — all of them have performed really well over the last couple of quarters. This trend is going to continue and definitely there is opportunity sitting in the BFSI sector.
Remember they were beaten down mercilessly by the market when the Covid second wave hit us. Even after the first wave, they were beaten down and then moved up. Again during the second Covid wave, they got beaten down predominantly on the back of concerns regarding asset quality. But the reality is something different compared to what the market was fearing. The asset quality has not deteriorated sharply as one anticipated before the second wave and things are looking up for most of these banks which are into corporate and retail lending aggressively.
Some banks have a challenge because they went into a shell and did not expand the book. They are still struggling to get the credit growth back but a bank like ICICI Bank and Axis Bank are on the right track there.
In the case of SBI, all the parameters they announced were pretty good except on credit growth but there is more opportunity even at current level in SBI. So yes, we are a buyer in BFSI. Apart from the specific banks I talked about, there are very interesting opportunities in the midcap banking universe. Federal Bank does look very good at current levels and there are opportunities in the larger BFSI space which includes housing finance and gold loan companies and NBFCs.
As the economy is expected to pick up pace and gather momentum and expectations of double digit growth coming back soon, BFSI will have a fantastic time.
On Nykaa IPO and listing
It should be a good listing. This is one stock which is not like the loss making companies that are coming and trying to raise money at a significant premium without certainty of their business model which we find extremely difficult to appreciate and value. Nykaa is a profitable venture. Globally we have seen this segment getting significant traction even during Covid and post Covid. Richest individuals in the world are owners of luxury brands and I think India has a long, long way to go. We have very few listed companies in this space. Going forward, Nykaa should do well and investors who get allotments are lucky. It should list at a significant premium. One needs to see how the market treats the stocks post listing for some time and then we can take a call whether to advise investors to take fresh positions or not.
What happens to IT? If these stocks were to consolidate further, can one buy afresh into these names?
Definitely. IT is one segment where we will get steady stable returns. We have seen the management commentary of all the IT companies and they are very bullish. The reality on the ground is very encouraging. They are getting orders and they are getting business like they have never ever got before. Digital transformation of the businesses is happening and, of course, the US and European markets are giving a lot of joy to Indian IT companies.
I believe that over the next five years, Indian IT will probably see the kind of growth they have never ever seen before or will see after. So the next five-seven years is going to be great for Indian IT. The stocks have rallied significantly but we believe the stocks will see 30% to 40% of the upside. The balance is still awaited. It may not happen tomorrow morning. It may not happen next week but if you give it some time, it will happen. So pick up a good IT company and you will get your return so you can go and pick up the largecap stocks.
We prefer HCL Tech out of the four. There is absolutely no problem in Infy or TCS or even Wipro, but if I have to pick one. Considering the valuation, I will pick HCL Tech. Midcap IT is one place where I will be a little careful as the valuations are a bit stretched and there you have to be little careful. There is absolutely no problem with the performance of the companies or the future, but be careful at what valuation you are picking up a midcap IT stock at this juncture.