7 realty and auto stocks to bet on now: Hemang Jani

“Auto ancillary is where there is a bigger action happening and we are extremely positive on tyre stocks. Apollo and Ceat are where we expect significant earning growth over the next couple of years,” says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL

In a high inflationary environment, one buys hard assets and one buys gold. This time, gold has not made money but real estate is where the money is flocking. Which is your favourite real estate stock?What are you telling clients to buy as they will be able to sell it higher ?
We continue to have very positive outlook on the real estate sector and we think that all the ingredients which are required in terms of inventory, clean up and the fact that we have a very strong traction across key markets – be it Delhi NCR or certain pockets of Bangalore and even eastern part which is extremely good.

Even as interest rates inch up, people are going out and buying houses as data points suggest. So within the pack, we have recently come out with a report on Bangalore-based real estate companies which had not seen very strong outperformance. We see some sort of initial data points suggesting that there is going to be a good revival.

Prestige and Brigade are the two names where we really see a case of 30% kind of an upside and apart from that, of course, Bombay being a big market, Lodha and Oberoi are our preferred picks as far as the Mumbai markets are concerned.

The difference between Ambuja and UltraTech now is almost 70-80%. I am using EV per tonne, the most widely used metrics for benchmarking purposes. Is Ambuja going higher because it is an Adani company or is there something else the market is betting on?
The market is sensing that the new owners are coming in and they have scheduled a board meeting on September 16 where there is a likelihood of aggressive capacity expansion by more than 40 million tonnes.

ACC-Ambuja combined have a capacity of about 64 million tonnes versus more than 100 million tonnes of Ambuja and if they infuse funds and make the balance sheet stronger, use the Rs 10,000 crore cash which is there for ACC-Ambuja combine, some amount of re-rating can come through and which is what the market is sensing.

We think that given that momentum and the fact that you will have a slightly better environment for the cement sector per se, with such a strong consolidation and the petcoke prices having gone down by more than 25%, there is a lot of momentum across Ambuja-ACC. ACC in particular is even cheaper when it comes to valuations EV per tonne versus both Ambuja and UltraTech. We should remain positive on the sector and relatively more positive on ACC.

Given that we have seen quite a few concerns with respect to the semiconductor shortage, the overall volume growth being impacted, will you be very selective when it comes to picking out names within the auto space and auto ancillaries?
The overall outlook is positive. It is time to be a bit selective because the sector has run up quite a lot and within the pack, we have our preferred picks like Maruti where we see a strong growth visibility along with that of Mahindra & Mahindra because tractor is where the incremental earnings growth seems to be coming through because of the kind of revival that we have seen.

Within two-wheelers, we would definitely be a little more selective. We would rather go with something like Hero Motor which has remained a relative underperformer. Auto ancillary is where there is a bigger action happening and we are also extremely positive on tyre stocks. Apollo and Ceat are where we expect significant earning growth over the next couple of years.

What is your outlook on the way IndusInd Bank has been performing?
We are expecting a very smart bounce-back after going through a turbulence around Covid times. Given the better growth visibility when it comes to the loan growth with a reasonably good asset quality at the valuation of almost about 1.3-1.4 times price to book, makes a very strong case, particularly when you are already loaded with the top private sector banks like ICICI Bank, HDFC Bank or Kotak Bank.

People want to add some of the more attractive names to their kitty and from that perspective, IndusInd Bank fits the bill and we have a positive view on the stock.

What is your view on Siemens, given that the company yesterday hosted their innovation day and they are looking at a lot of efficiencies, sustainability and profitability going forward and a real thrust to their digital business? The stock is very close to all-time highs and at Rs 3057, what is your view on Siemens?
Capex as a theme is showing good traction in the last two months and all the top companies – be it ABB, Siemens and a whole host of midcap companies – have gone up by about 25 to 40%. We think that this capex theme could eventually play out because for almost eight years, it has not really come into the limelight or the revival has not happened.

Siemens is at the forefront of that and being an MNC company with a low floating stock, it would definitely do extremely well. Apart from that, maybe L&T would be a good name to look at when it comes to the capex theme. From a midcap perspective, Cummins India would do well.

Wanted your take when it comes to the entire auto basket? Is there still time to look at the sector to make long-term gains or do you think the best is over and the likes of M&M etc are already scaling fresh highs?
We are more positive on auto ancillaries at this point and tyre companies are where we are more positive because the rubber prices have really come down, the crude prices are down and there is a good traction when it comes to CVs and passenger vehicles both.

Apollo Tyre and Ceat are the two names that we like within the auto ancillary. Talking about the auto sector, the OEM part, we continue to like both Maruti and M&M and we think they have done extremely well and are consolidating but from a medium-term perspective, we continue to have a positive view over there.

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