One of the cardinal principles of investing is that you must aggressively buy stocks when they are available at low valuations owing to temporary reasons. This advice is immortalized in the slogan “Buy when there is blood on the streets” coined by a genius investor.
Unfortunately, novice investors like you and me never pay heed to this advice. Instead, we are happy to buy stocks when they are surging at 52-week highs. However, when the same stocks plunge to their 52-week lows, we go into a shell and lose interest in stocks.
If you want inspiration on how buying in times of crises leads to super-mega gains, you have to watch the youtube videos of the TV channels during the great crises of 2008 (see Don’t Panic – Use Stock Market Correction To Buy Top-Quality Stocks). You will be astonished at the fact that stocks of top-quality blue chip companies were available at throwaway valuations but nobody cared for them.
A more recent example is that of IPCA Labs. When the stock got into FDA trouble, investors dumped the stock like a hot potato and it plunged to a low of Rs. 591 on 06.02.2015. Investors who braved the storm and bought the stock are basking in gains of 38% at the CMP of Rs. 852.
Yet another example is the beleaguered PSU Banking sector. You will be astonished to note that the CNX PSU Bank Index is up 37% YTD. Brokerages are now belatedly waking up to the sector and sending buy calls.
Presently, the realty sector is providing the unique opportunity of putting theory into practice because several A-Grade realty stock are going a-begging.
In fact, in just the last six months, the BSE Realty Index has plunged 25% while the Nifty is down only 5%. The damage at the level of individual realty stocks is higher.
The savvy investors are already pumping in large sums of money in buying realty properties. Warburg Pincus, the marquee private equity firm, announced a couple of weeks ago that it is investing a fortune of Rs. 1800 crore in Ajay Piramal’s Piramal Realty. Goldman Sachs joined in a few days ago with an investment of Rs. 900 crore.
Anand Piramal pointed out that the time is opportune because the market is soft and it is a great time for players with the holding power to buy assets. He added that the sector is at the bottom of the cycle and trending upward from here on.
Ankur Sahu of Goldman Sachs explained the logic behind the investment in succinct words: “With a new government in New Delhi there is a renewed optimism. It’s clear that, like China, the road to urbanisation will see demand for high quality, aspirational housing rise exponentially. Mumbai is among the largest cities in the country and the wealthiest too. We expect the short- term volatility in the sector will give way to stronger, growth driven, transparent companies that are well-capitalized and primed to take advantage of the future upswing”.
Anuj Puri of JLL India opined that the deal indicates that property prices are now making sense and that valuations are attractive. He emphasized that investors will get attracted to realty companies with good corporate governance and transparency in their dealings.
The same view was expressed by several other experts who were interviewed by ET and FE.
There is also an article in ET which argues that the time is opportune to be a contrarian and to bottom fish.
It is also worth noting that Ajay Piramal made his billions from being a contrarian. He started his career with a contrarian purchase of Nicholas Labs and has made several contrarian bets along the way such as Vodafone, Shriram Transport etc.
If one is inclined to buy realty stocks, the sensible course of action is to stick to the tried and tested stocks which have been given the all-clear by savvy investors. Names like Ashiana Housing, Poddar Developers, Oberoi Realty, Godrej Properties etc are the few stocks that require to be kept in the radar.
Pain in realty sector will continue. As compnies are defaulting and finding it difficult to manage debt.This will create condition for forced liquidation. This will be start of further crash.Users are reluctant to buy as builders has deleted delivery or even project are held up midway.Even invested has lost money of late .More over IT dept surveillance has caused investors to vanish in thin air.Govt focus on direct transfer has reduced leakages otherwise that money of middleman and politicians might have find its way to property. More over income tax dept recent circular to even tax empty properties will further ruin the sector.Big invested are traped in property as well as stocks of this sector.Even Cement production is indicating further slow down.This is confirmed by quarterly results if Cement sector.Sector is for long stagnation.So why to take chance.This sector can be better played through private banks,paints,plywood,housing finiance compnies sanitary, tiles industry.Let the experts take the risk,small invested will be better to stay away directly.
Also I would like to mention that Ajay
Piramal made money by selling his pharma business.But out of that he has invested a big chunk in Shri Ram city, Shriram capital and Shri Ram transport etc.At that time stakes were bought at very high price .Shri Ram group was very much fencied at that time.Now investers are doing SHRI RAM to those stocks.
Agree with you. Bloodshed on the streets has yet to happen! Not just in realty, but in entire market scene. There are huge problems relating to the realty sector that havent been priced in as yet. I receive hundreds of emails, messages offering real estate at lower prices, yet projects are not moving. All tier 1 and tier 2 cities are part of this decline.
Indian consumption scenario has weakened – even a very good car maker Renault says they have piled up 3 months inventory and are hiving off 3000 workers! Monsoon scene appears to be worser day by day which will further weaken rural consumption. Perhaps all the black money that was allowed to enter India surrogately by the govt (to protect its political funders/supporters perhaps) may have all been finished!! And the taxman is only applying salt to their wounds!!
But the bigger issues will be the big global recession coming from across the border (China), from the green continent (Europe) and from the new continent (US). Decline in oil prices is denting US chances of recovery, at the same time, curbing the appetite of the Middle East for consumption and capital investment. Chinese currency games appear to be their last resort to resist their own downtrend, but that will be futile because they have pegged Yuan for far too long to the USD, and there is still a long way in devaluation for them. That itself will be catastrophic for India and rest of the world. Soon the Rupee will head towards Rs 70 – (exposing all the chronic liars who fooled the public with Rs 45 per dollar predictions before the Loksabha elections!). And precious metals are already standing up – trying to pick where mayhem starts!
Back to realty – the reality is quite painful. I wont touch even the best company for a long time unless there is a sign of honest attempt by all concerned to bring sanity to high RE prices. When we have penny stocks in RE, maybe then we can pick some!