Bears continue siege over Dalal Street
On Friday, I reported the grim news that a platoon of Bears has invaded Dalal Street and have laid siege.
The Bears wrecked havoc and dragged the Nifty below the psychological benchmark of 11,000.
NIFTY BELOW 11000 — what panic in markets !
— Yatin Mota (@YatinMota) September 21, 2018
Unfortunately, the Bears’ siege continued today as well.
The Sensex lost 536 points while the Nifty plunged 175 points.
— CNBC-TV18 (@CNBCTV18Live) September 24, 2018
The worst part is that even stronghold defenses of the Bulls, which were hitherto regarded as being impregnable, caved in without much of a fight.
HDFC, the blue-chip behemoth, and HDFC Bank, its illustrious sibling, lost huge chunks of their valuation, spreading terror in the minds of the Bulls that no safe havens are left for them to hide in.
— Anisha Jain (@_anishaj) September 24, 2018
HDFC twins taking a sharp knock
After a while HDFC twins under-performing the NIFTY BIG TIME!!
— Nigel D'Souza (@Nigel__DSouza) September 24, 2018
In fact, in just the last three sessions, the markets have lost a colossal fortune of Rs. 1 lakh crore.
TCS, the mother of all blue-chips, lost a mammoth valuation of Rs. 37,000 crore.
Behemoths like ONGC, IOC and RIL kept company by losing big chunks of their own valuations as well.
Nifty Mcap eroded by more than Rs1 lakh crore in last 2 days. Here’s the top gainers and losers pic.twitter.com/wKVwbObJN4
— Jayesh Khilnani (@jayeshkhilnani) September 24, 2018
(Dalal Street punters watching the Bears’ attack)
Saare Khuraafaat ki Jad are financials: Shankar Sharma
Naturally, Shankar Sharma was not amused at the sorry state of affairs.
He hauled up the financial stocks and pinned the blame on them.
“Saare Khuraafaat ki Jad are financials,” he said in chaste Urdu mixed with Mumbaiya Hindi, showing that he is a man of good breeding and culture.
“That’s why I always steer clear of financials like NBFCs and Banks,” he added.
That's why I always steer clear of financials like NBFCs and Banks. ( Some exceptions like HDFC Bank, IndusInd notwithstanding). Through financial itihaas, bazaar mien always saare Khuraafaat ki Jad are financials.
— Shankar Sharma (@1shankarsharma) September 24, 2018
Prima facie, Shankar’s theory appears to be correct because it appears that there is a fear of some mega default in the wake of the IL&FS fiasco.
In fact, Finance Minister Arun Jaitley stated that adequate liquidity would be provided to NBFCs, Mutual funds and SMEs, implying that the situation is serious and a default by IL&FS may be around the corner.
The Government will take all measures to ensure that adequate liquidity is maintained/provided to the NBFCs, the Mutual funds and the SMEs.
— Arun Jaitley (@arunjaitley) September 24, 2018
However, S. Gurumurthy, the distinguished CA and member of RBI’s governing board, explained that the fears of IL&FS’ default are baseless.
Basel rules are designed for Commercial banks, not universal banks which all Indian banks are, and term lending institutions which ILFS & likes are. Applying NPA norms to them is to ask one play football with hockey rules. Unfortunate a good institution is being destroyed
— S Gurumurthy (@sgurumurthy) September 22, 2018
Gurumurthy’s theory is endorsed by Samir Arora.
It is ridiculous to compare ILFS with typical NBFCs. ILFS assets are all these long duration infra assets with unpredictable cash flows.
Normal half decent consumer/housing NBFCs have predictable cash flows/reasonable prepayments and low ALM mismatch.
— Samir Arora (@Iamsamirarora) September 23, 2018
Prima facie, this is significant because it implies that when the market realizes that the fears of IL&FS’ default are baseless, it will surge right back and recover all losses.
Porinju Veliyath recommends two stocks
Porinju Veliyath is known to be a man of action. He does not waste time on theoretical meanderings.
He put his thinking cap and homed in on two high-quality and fail-safe stocks that are an irresistible buy now.
These two stocks are Oberoi Realty and Godrej Properties.
Porinju rightly pointed out that these stocks are not only high-quality in terms of management quality but they also have solid assets, brand & business model.
The best part is these stocks have lost huge chunks of valuation which means that they are now available at bargain basement prices.
Oberoi Realty @ 410 & Godrej Properties @ 560, two well-corrected high-quality stocks in the sector with solid assets, brand & business model.
Discl: no vested interests, not holding
— Porinju Veliyath (@porinju) September 24, 2018
Two examples, many more in different sectors. Use the opportunity to build a long-term portfolio. A good time for fresh investments though nobody can predict the market bottom. Ignore current sentiment, focus on stocks with long-term potential, available at sensible prices.
— Porinju Veliyath (@porinju) September 24, 2018
Oberoi Realty, also recommended by Mohnish Pabrai
It may be recalled that during the joyous celebrations of Diwali 2017, Mohnish Pabrai had recommended three stocks to us.
Oberoi Realty was one of them.
In fact, Mohnish’s ‘The Pabrai Investment Fund II’ holds 15,50,000 shares of Oberoi Realty as of 31st March 2018.
The investment is worth Rs. 63 crore at the CMP of Rs. 405.
The present holding is not known.
Real estate sector will be out of woods soon: Deutsche Bank and Spark Capital
The analysts at Deutsche Bank and Spark Capital have opined that the gloomy days for the real estate sector are now over and the stocks are ripe for the picking.
As expected, the logic is compelling:
1. The worst of sector-specific policy drags is behind
2. Cyclical recovery momentum is beginning to turn supportive
3. Demand-supply dynamics in the commercial segment has improved for developers and gradual bottoming out seen in residential property market.
4. Improved affordability
5. Government push and developer focus on launches of affordable homes where there is a latent demand
6. Improving consumer sentiment post RERA.
It is opined that investors are under-pricing the medium to long-term growth opportunities in a more organised and consolidated real estate industry in India.
It is also stated that top tier developers with strong execution track record, good product portfolio, and financial capability will be big beneficiaries of the changing landscape in the industry.
Oberoi Realty & Godrej Properties – best stocks in the realty sector
Experts are unanimous that if one has to bet on the realty sector, Oberoi Realty & Godrej Properties are the best plays owing to the blue-chip pedigree.
Anand Rathi has pointed out that Oberoi Realty has the added advantage of a strong leasing and profitable hospitality portfolio comprising of commercial office space, mall and hotel.
The company has around 13 million Sq.ft of ongoing projects and around 15 million Sq.ft of planned projects totalling 28 million Sq.ft having diversification across residential (62 percent), office space (13 percent), retail (10 percent), hospitality (9 percent) and social infra (6 percent).
Oberoi Realty is expected to report revenue CAGR of 63.04 percent over two financial years primarily driven by recognition of revenues from pre sales in ongoing projects.
It is also stated that key regulatory reforms like RERA, GST & demonetization will drive significant momentum in favor of organized players.
Oberoi Realty is the preferred choice in real estate sector because of:
(i) Robust revenue and cash-flow visibility;
(ii) higher operating profit margins;
(iii) clear land-titles;
(iv) steady lease rentals;
(v) huge brand equity in the Mumbai Real Estate market;
(vi) strong brand equity, good corporate governance, quality land bank, healthy project pipeline and attractive valuations.
Anand Rathi have foreseen a target price of Rs 600 per share for Oberoi Realty which is 22x of its FY19e EPS of Rs. 27.30.
Oberoi Realty also has an investors’ presentation which reveals details of its ongoing projects etc.
Godrej Properties is also a powerhouse blue-chip which is already a multibagger.
In the period between FY16 and FY18, Godrej Properties has given a gain of 180 percent.
This is quite phenomenal when we bear in mind the travails of demonetisation, RERA and GST.
Godrej Properties has been recommended by Deutsche Bank for a target price of Rs 1,000.
The USP of Godrej Properties is said to be its unique asset-light business model and successful pan India presence.
Porinju’s advice that we should use the correction to buy high-quality stocks and build a solid long-term portfolio is quite sound. His recommendation of two high-quality stocks is also very helpful because it gives us a head-start in the matter!