Realty Weakness Overdone: Midcap Correction Creates Long-Term Opportunities
In today’s volatile market, patience is an investor’s best asset, according to market expert Sandip Sabharwal. He highlighted the current situation, emphasizing that significant opportunities are emerging for those willing to wait 18 to 24 months.
Current Market Dynamics
– Broader Market Recovery: Despite a recovery across many sectors, the real estate industry continues to face challenges. Strong sales updates from various developers contrast sharply with weaker reported earnings.
– Disconnect in Performance: Participants in the market are struggling to reconcile the operational momentum within real estate against earnings that have not met expectations in recent quarters.
Speaking to ET Now, Sabharwal pointed out, The current pessimism surrounding real estate stocks may be unfounded, largely due to the nuances of accounting in this sector. He explained that the way earnings are reported can be misleading. Investors should focus on the sales data and expected future proceeds rather than just quarterly profit figures.
Navigating Realty Weakness
– Selective Buying Opportunities: Sabharwal noted that despite not holding any real estate stocks at the moment, the ongoing corrections present intriguing buying opportunities.
– Recommended Stocks: He specifically mentioned:
– DLF: Strong balance sheet, zero debt, robust cash flows, and consistent sales data make it a preferred choice.
– Godrej Properties and Prestige: Both have reached attractive valuation levels and are considered potential buys.
Investment Insights
Preference for Large Banks and Select NBFCs
In the lending sector, Sabharwal favors established banks and certain non-banking financial companies (NBFCs):
– Key Bank Holdings:
– ICICI Bank
– Axis Bank
– SBI
– HDFC Bank (now trading around 920 levels post-correction)
Among NBFCs, he highlighted:
– Mahindra Finance
– L&T Finance
– Manappuram Finance
He also signaled growth potential in commercial vehicle lending as a noteworthy opportunity.
Midcap and Smallcap Investment Strategies
Sabharwal believes the most attractive risk-reward balance currently lies in midcaps and smallcaps:
– Midcap Index Performance: While the midcap index hasn’t experienced extensive declines, many specific stocks and sectors have corrected by 50-70%.
– Future Recovery: Not all will bounce back, particularly those based solely on narratives, but many will recover strongly.
Key Sectors to Watch:
– Consumer Durables & Non-Durables: These segments are gaining traction and could breach new heights.
– Infrastructure & Construction: Numerous companies are available at favorable valuations.
– NBFCs and Smaller Banks: While worth monitoring, Sabharwal indicates a personal preference against smaller banks.
Conclusion
Summarizing his outlook, Sandip Sabharwal reinforces that patience is crucial for investors during these turbulent times. “We have witnessed a considerable selloff, leading to attractive opportunities for investors willing to remain patient for 18 to 24 months.” With potential gains in midcaps and select real estate stocks, the current correction might just be the stepping stone for savvy investors looking to capitalize in the coming years.