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.