“The real estate sector has gone through significant disruptions in the last decade,” says Dr. Poonam Tandon, Chief Investment Officer at IndiaFirst Life.
In an interview with ETMarkets, Tandon said: “we believe the sector is witnessing a multi-year cycle with low inventory levels and improving affordability aiding strong demand, especially on the residential real estate,” Edited excerpts:
We are seeing some turnaround in Indian markets – is it the post Diwali dhamaka or Santa rally?Even though the global environment has not been conducive global equity markets witnessed a respite given the euphoria that the US Fed may not further hike interest rates and Middle East tensions are not escalating.
Indian market also saw a rally with improving global sentiments and oil prices coming down coupled with strong domestic growth parameters – PMI, GST collection, and monthly high frequency data all continuing to stay robust.
Having said that FPI flows have not been so encouraging and the US Fed has also indicated that it may have to respond if inflation continues to rise.
So, the sustenance of this rally will need to be monitored as these factors could turn negative in the short term which can keep markets volatile in the coming few months.
What are your expectations from Samvat 2080?The Samvat 2080 will be an interesting one as it has many events lined up both global and domestic that can influence the market sentiments – globally we need to monitor how the geopolitical situation will unfold as it can have a spillover effect on inflation and crude oil prices, the US Fed policy, the US bond yields, the US election – on the other hand in the domestic market also outcome of general election will be keenly watched even though in the long run elections do not have much impact on the markets, monsoon, rural demand recovery and corporate earnings momentum.
For us the domestic capex story remains intact and consumers and corporate sentiments are resilient with a steady macro regime post-COVID, but we do not rule out the volatility as the hardening of USD and crude oil prices could pose a challenge in the interim.
Top risks that investors should watch out for in the next 12 months?The Israel/Hamas issue in the Middle East has added to the ongoing risk of the Russia/Ukraine crisis.
Moreover, with US inflation being stubborn, Chinese demand not picking up, slowdown in the US and Europe are some of the other major risks.
In India, any spill-over of global issues, adverse domestic political situation with state election around the corner, erratic monsoon resulting in lower reservoir levels which could impact Rabi sowing and climate-led heat waves are the key worries.
How should one play the capex theme? Do you have some traction in this space ahead of national elections?We believe the long-term capex story remains intact as we are seeing a massive shift in the capex cycle benefiting from the China plus strategy.
While the spending trend both at the Centre and state levels has seen traction in H1FY24, it is encouraging to note that ordering activity is going strong in the current quarter and is not likely to suffer in the run-up to the elections.
Moreover, there are positive signs that private capex is starting to emerge with a lot of capacities operating at near-peak levels.
The capex theme can be played through capital goods, defence, power, and allied sectors such as manufacturing & banking will also benefit.
With interest rate at around 5% — how is FII activity likely in Samvat 2080?With the US 10-year bond yield hovering around 4.5-5%, the FPI flows into India have been adverse starting August though the intensity of selling has slowed down in November.
The exposure of foreign investors holding has been reduced which could benefit India from massive inflows once the US Fed is done with the rate hike cycle.
Moreover, with flows reversing from Chinese markets in the last year, we are yet to see significant FII inflows into India.
What does the management commentary of India Inc. suggest for the next few quarters? Any earnings of companies that stood out?Most of the companies have reported their 2QFY24 earnings with auto, BFSI, capital goods, and oil & gas reporting strong earnings. However, the IT and FMCG sectors posted muted numbers on expected lines.
We note that commentary on rural recovery has been weak and discretionary spending is still being modest.
On the other hand, the domestic manufacturing space has reported strong earnings growth with a government focus on indigenisation and lower commodity prices.
Real estate stocks have been in focus lately – are you tracking this trend?The real estate sector has gone through significant disruptions in the last decade. We are positive on the real estate cycle and have been overweight on this space as we believe the sector is witnessing a multi-year cycle with low inventory levels and improving affordability aiding strong demand, especially in residential real estate.
We prefer companies that have strong balance sheets and are expected to gain market share from long-term consolidation of the sector.
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Any sectors that investors should avoid or go underweight after a recent rally?We continue to stay bullish on the domestic investment theme over the consumption theme driven by economic & political stability and continued focus on indigenisation.
We remain overweight on sectors that will benefit from economic growth such as banks, industrials & utilities, defence, real estate, and cement.
