What to do with realty, new age stocks now?

Rajat Sharma, Founder & CEO, Sana Securities, says “real estate has a very long cycle. Once they do become the flavour to be bought, then the stocks move up really sharply and that typically happens in the post-correction period of the market. Right now, I do not think any investors are going to get attracted to real estate.”

The auto numbers for March were rather disappointing. What is your top bet within the auto sector – be it the two-wheeler space, passenger vehicles, or commercial vehicles?

Rajat Sharma: I think the only number that was disappointing is Hero Motocorp’s, where the overall sales were 8.6% down. But again, the silver lining there was that export sales were up by a mile actually. And it is very difficult to say the reason why sales dipped. Just to give you a disclosure, I hold Hero Moto and I have been consistently recommending the stock on your show. I really like two-wheeler space and I have recommended buying this stock.

But quarter-on-quarter, they did not manufacture enough, they did not advertise enough because Bajaj Auto sales are 25% up. So, difficult to say. I really like the two-wheeler space although at this point a lot of stocks are a little overvalued. I bought them at a price far below where they are trading, 2600, 2800 for Hero Moto is where I got in and recommended the same.

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Even if you are a new investor looking to add some stocks to your portfolio, making a fundamentally good portfolio for a long term, you should add two-wheeler stocks, but do not buy them in a big chunk or as a lump sum, just keep slowly getting into them and today stock 2-2.5% down is a good day to add a little of this to your portfolio. They are market leaders, they have got the largest share and that is not going to get disrupted anytime soon.

What do you make of the real estate pack because that has had a very steady up move for the last two years and it continues to be the same even now. Do you think there is still value on the table and one can still add positions or get in afresh into any of the names?

Rajat Sharma: I have not got into any of the real estate stocks. Although I have been reading about what is happening in this space, house prices and commercial real estate are up about 30% in the last two years in many pockets of the country. But when I look at the listed players, there are a lot of unlisted players who are doing a lot of good work and they are coming up with projects, but when you look at the listed players, let us look at DLF.

The stock is trading at valuations of 97. There was a time when it was available cheaply around a decade, decade and a half back, but right now in the listed space there is nothing so striking at least that I found which makes me feel that this is a stock that you should buy. But again, real estate has a very long cycle. Once they do become the flavour to be bought, then the stocks move up really sharply and that typically happens in the post-correction period of the market. Right now, I do not think any investors are going to get attracted to real estate.

What is your view on some of these new-age tech companies?

Rajat Sharma: When it comes to new-age technology stocks, I will again give a disclosure first. Paytm is a stock which I had in my portfolio. I got out of it when it fell around 12-14%. In fact, I had substantial positions in Paytm, the highest in one of my portfolios was about 8%, just to be very clear with my disclosures.

I really liked this stock because at 2100 where it got listed, it was a bad stock, but at 600-700 odd levels, it is a good stock. If the government had not taken such a strict action on them because finally they had things going for them, they had a very clearly defined revenue model. They had clear verticals and they were about to turn profitable. Personally, I think if things revive for them, this is not a bad level to buy this at because they were eating into market share of a lot of the larger banks, private sector and public sector banks.

Every time I hear this commentary on banks, one of the reasons why I got into Paytm and why I liked a lot of the NBFCs and stocks like tech-driven financial services companies is because I have been seeing this for about five-six years now, year-on-year I come and say there is a lot of talk around private sector banks but if you look at the likes of Kotak, Axis, HDFC and their past five-year stock price performance, none of these banks have delivered anything above 25% to 35% since 2019 till 2024, that is five years.

So, I am going pre-COVID levels. For most of these large private sector banks, whether it is Axis, Kotak or IndusInd all of them, their FDs have delivered more returns than these banks. ICICI Bank is one exception and that is largely because ICICI Securities is now merging into it. So, most of the run-up has come in the last one year.

If you look at the core business of these banks, there’s a lot of the consumer loans whether it is auto or personal loans or car loans. There are a lot of NBFCs who are doing that. The share of fee-based income was increasing, which was the big story, is now being eaten into by a lot of the other service providers. So, I really do not know what is the future of banking.

If you see the west, the same trend has happened there, a lot of the traditional old large banks have suffered for many years despite the bull market run that we have seen there and I was doing a deep dive into the banking sector.

From April 1st, 2020, which is the Covid bottom, till 1st April 2024, which was yesterday, in the last four years. If you see the private sector banks, they have on average grown about 2.25% and the PSU banks have on average grown about 4.5%. There are stocks like UCO Bank, Bank of Maharashtra, which are Rs 9-10 to Rs 50-60. But if you think about it, who is opening bank accounts there? The reason they have done well is because they have reduced provisionings over the years because interest rates had fallen until the Covid period and the last year and a half to two years interest rates have gone up from 4% to about 6.5%, so their net interest margins have increased.

But going forward, I do not think banking is a sector which will be what it was in the past. So, it has not performed well for the last five years no matter which bank you look at and it is unlikely to change.

William Murphy

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