Green shoots spotted in the real estate market
It is a matter of common sense that astute investors who are able to spot new trends and pack their portfolio with stocks at bargain basement prices are able to rake in multibagger gains.
Saurabh Mukherjea has opined that the real estate market, which is presently in the doghouse, is seeing signs of revival.
“The area where we are getting very intrigued is real estate. We are hearing that in small town India, residential real estate demand is picking up, we are seeing some positive price action as well,” he said.
“There are early signs of green shoots in the residential real estate market, not in Mumbai but in other cities like say Ahmedabad,” he added.
The revival is happening because interest costs have slumped and it is becoming easier to acquire a home.
“The cost of a home loan is now 7-7.5% so the gap between home loan rates and the rental yields have once again narrowed,” he explained.
2021 will belong to real estate: Sanjiv Bhasin
Saurabh’s optimism for the realty sector is shared by Sanjiv Bhasin, the veteran investor.
“I have been an advocate of real estate and I can tell you if gold is going to be Rs 58,000 and you are going to be smiling your way to the bank, then definitely hard assets like real estate will be the next trend setter. Mind my words, 2021 will belong to real estate and that is hard assets,” he said confidently.
— sanjiv (@sanjiv_bhasin) August 28, 2020
Which realty sub-sector will benefit?
It is elementary that if people buy houses for several lakhs of rupees, they will also spend lots of money on pipes, sanitary ware, tiles, etc.
“This is the time to look at the building materials companies,” Saurabh said.
“We are taking a broader look at the building material space to see if they can benefit if the demand for building materials comes through especially as the data out there suggests that rural India is doing well. So the tiles, plywood, sanitary ware ecosystem can flourish again,” he added.
Three stocks are already there in the Marcellus portfolio
Saurabh revealed that he already has three stocks in the Marcellus’ portfolio which will prosper from a boom in the realty/ building materials sector.
These are Asian Paints, Pidilite and Astral Poly.
Asian Paints and Pidilite are old blue-chip war-horses which are very familiar to us owing to their glorious mega-bagger history.
Astral Poly Technik, a mid-cap (Rs. 17000 crore market-cap), appears to be walking on the same illustrious path as its large-cap peers.
According to Hitesh Patel, a noted expert on the ValuePickr Forum, Astral Poly meets the test laid down by Warren Buffett of being “the best business” i.e. “one that over an extended period can employ large amounts of incremental capital at very high rates of return“.
It is notable that the market-cap of Astral Poly has swelled from a paltry Rs. 274 crore since Hitesh Patel made the brilliant recommendation (in March 2011) to the present Rs. 17000 crore, generating incalculable wealth for the lucky shareholders.
What about Cera Sanitaryware and Kajaria Ceramics?
Cera Sanitaryware and Kajaria Ceramics have a strangle-hold over the sanitary-ware and Tiles market and are strong contenders for our money.
Vijay Kedia and Guy Spier are both strong believers in the prospects of Cera Sanitaryware.
“Cera plays a dominant role not only in the sanitary sector but also in the housing sector as a whole. But it is only a midcap. So, the idea is to find a small cap which can transform into a midcap and a midcap which can transform into a large cap. It might take 10 years or 15 years. This is the job of an investor in the market,” Vijay Kedia said.
Kajaria Ceramics is of the same pedigree as Cera Sanitaryware in terms of its dominance in the market place.
What about Godrej Properties recommended by Sanjiv Bhasin?
If we are inclined to dabble directly with realty stocks, we have a number of choices such as DLF, NBCC, Godrej Properties, Nagarjuna Construction etc.
Godrej Properties appears to be a promising candidate given that it has top-quality management with impeccable credentials (Billionaire Adi Godrej).
We can also consider mortgage lenders like HDFC, Repco Home Finance, LIC Housing etc as ancillary plays into the revival of the realty sector.
These mortgage lenders are a good bet because, according to Nirmal Jain, the visionary Billionaire founder of IIFL, NBFCs are now in a much stronger position than before due to the proactive support of the Government and the RBI. NBFCs are now permitted to partner with banks under the RBI’s revised co-lending norms.
Government and RBI have proactively supported NBFCs to fight the risk paranoia of investors and banks. I think the sector will come out much stronger .. RBI: 'All' NBFCs can now partner with banks under RBI's revised co-lending norms, BFSI News, ET BFSI https://t.co/tfTwlYj97E
— Nirmal Jain (@JainNirmal) October 10, 2020