On real estate stocks
Real estate is one segment where there are clear signs of a revival on the residential side all over the country and that will play out in many companies. On the office side, because of the work-from-home practice and the fact that many of the service sectors like IT, technology related companies, etc, will continue with a work-from-home policy for a prolonged period of time, if not forever, the demand for office space may remain stagnant.
The residential real estate story is different and we are seeing significant revival. Most of the real estate stocks are under owned by investors. If you see mutual fund portfolios, etc, you hardly see any real estate stocks. Some funds have some holding of Godrej Properties, etc, but not much. Many of these companies might continue to do well next year as this will be the start of the revival cycle.
In different portfolios, we hold DLF and Sobha Developers. I am positive on both these stocks based on the current valuations at which stocks trade. believe there is still upside. Other stocks to look at obviously could be stocks like Godrej Properties and Oberoi Realty. Oberoi is very Mumbai specific and premium property, etc. There the revival might be a bit long term. It might take some more time and to that extent, that could be the pecking order.
On junk food stocks
Yes that is true. On Jubilant Food, my view at this price is very clear. I think it is trading at obnoxious valuations. The valuations are way beyond what the company can deliver in terms of performance because immediately after the crisis broke out, the company started shutting down their outlets left, right and centre to control costs and show higher profitability. Then they suddenly realised that the revival actually has happened faster than what they were thinking but then they had already let go of many of those outlets. Now they are going back on an expansion spree. I do not know why people got excited by the foray into readymade food, biryani, etc. It is a very tough market. Many companies have been trying to grow. If you look at what ITC has been trying to do with its readymade food, etc, it is not an easy business.
At Rs 2,800, Jubilant Foodworks is a brilliant price for people who are holding and my advice will be to take out the profits.
On Burger King
It is beyond logic. It was a small IPO with very low floating stock. Typically, many midcap buy illiquid stocks and then because the floating stock is not there, those stocks tend to trade at higher valuation till the overall market goes through a bigger correction and then these stocks get sold off. So I think that is happening here because the floating stock is very low. But on pure valuation it is totally unjustified.
The price that I would buy Burger King would be at least 30-40% lower. There is an argument these days in the market that valuations do not matter. I am a bit traditional. I believe valuations do matter and we buy at the right valuation.
What’s next for Divi’s?
Pharma initially saw a big up move and very few stocks have continued to rally subsequently. In some of the other stocks like Dr Reddy’s, Cipla we have seen some correction even as the overall markets kept on rallying.
Divi’s has been on a tear but at Rs 1 lakh crore market capitalisation for the near term, it seems to be fully valued. It is a stock where ownership could go up via passive flows as money continues to flow into large caps. This is a fund flow based trend which is favourable for it.
On valuation and dynamics. Dr Reddy’s and Sun Pharma could still have a little upside. So there is very little upside right now but those are the stocks one could be looking to buy on any kind of correction.
On media stocks like Sun TV, Zee
Sandip Sabharwal: We have not owned Zee for a long time because the problem has not been about valuations. The problem has been corporate governance. Otherwise, fundamentally, at Rs 230 with the reviving ad market as demand trends stabilise, it should be a good stock to buy. But corporate governance concerns keep us away.
Accenture guidance on double digit growth & IT sector
As far as I understood, Accenture has said that in the first half, they will be looking at high single to double digit growth because obviously there was a slowdown in the first quarter because of Covid but overall for 2021 they are looking at 4-6% growth.
Based on this news flow we could see a small uptick come through in most of the technology companies, maybe a 2-4% kind of move is possible. But companies on a revival cycle are going to grow at 4-5% and that is going to be their trend growth rate possibly. The valuation barrier is coming in most of the technology companies. Unless and until the growth outlook improves beyond this for the companies which are going to grow at may be 5%, can we give a 35-40 PE? Absolute upside could be limited for the large technology companies.
On sugar stocks
The subsidy announcement was at par with what was expected but it is down from last year and the government has taken into consideration the fact that the global sugar prices have moved up. Therefore, less subsidies are required and larger companies with good balance sheets should benefit because of this.
On the other hand, this year sugar production is higher and the minimum sugar selling price has been kept stable. Because of higher production, the prices in some areas have gone somewhat below that level. We could see a phase of consolidation in sugar companies stocks before there is a further up move on pure valuation. They are still cheap relative to what is happening on the ethanol story as well as the overall sugar story. For the next two-three years, some of the companies might do good. We have some exposure in Balrampur and Triveni Engineering.
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