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    5 capital goods and realty stocks to bet on now: Siddhartha Khemka

    Synopsis

    “One can play the capex theme directly through the capital goods space wherein we are very positive and we like L&T which is the proxy on the overall capex theme in India. We also like Siemens and ABB within the capital goods space. We also like residential real estate and here we prefer Macrotech Developers and Oberoi Realty.”

    Siddharth Khemka2-1200ETMarkets.com
    “The overall outlook on banking is turning positive. In the current quarter, we expect the private banks to continue to report strong PAT growth of almost 40% while that of the public sector banks might be under pressure and remain a bit muted,” says Siddhartha Khemka, Head of Retail Research, MOFSL

    Peak 16,000 on Nifty seems to be a bit a challenge yet again.
    I think the market is missing the followup action where we saw good recovery from those 15,200 odd levels a few weeks back and there were a slew of positive factors going in for India – crude plus other commodity prices correcting. Monsoon saw a sharp recovery in July; even the FII selling drastically reduced from the peaks of May and June and we even saw a couple of days of positive numbers from FIIs. To top it, we had a good GST collection and the services PMI numbers came in very strong.

    All these helped the indices recover. But now we need a followup action at the higher levels which has been missing in the last couple of months. On every bounce, concerns outweigh the positives. Globally, the concern is of high inflation. We will get the US inflation data which would continue to remain at a 40-41-year high and that would bring forth challenges which the central banks would need to tackle to control the inflation and to keep on hiking the interest rates.

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    So that is kind of an overarching concern in the market and that continues. Nonetheless, on the domestic side, the result season has started with IT companies not very strong. This was on expected lines as we were expecting margins to take a hit on back of salary hikes as well as other costs which have gone up.

    But if one looks at the pre-quarterly updates that have come in from banking, financials, some of the retail and real estate sector, that has been pretty strong. So I think as we progress towards the result season things will become more clear. We will get clear commentaries from management about the margins pressure because of the inflation, the demand outlook as well as the growth in the economy.

    What do you think about what is happening with the entire banking sector and specifically, IndusInd Bank came under a lot of pressure today. Do you track that one closely?
    The overall outlook on banking is turning positive. In the last couple of quarters, we have seen pretty strong numbers from the overall banking space, led by the private corporate banks. So in the current quarter, we expect the private banks to continue to report strong PAT growth of almost 40% while that of the public sector banks might be under pressure and remain a bit muted.

    Some of these banks have already started giving out the pre-quarterly updates wherein they have reported strong growth not only in terms of the deposits, but loan growth is also picking up and we have already seen the asset cycle improving a lot because of the recoveries as well as the higher provisions that they had made earlier. They do not need to do a lot of provisioning in these quarters as the new asset quality deterioration is not happening at the same pace. Overall, we continue to remain positive, specifically if you look at the corporate banks like ICICI, SBI.

    There is some specific issue regarding IndusInd Bank which would have led to the kind of fall especially on the asset quality. There was some news today about some fraud by employees. We have not tracked that or we have not got any confirmation yet but that is what is spooking IndusInd specifically.

    There is evidence that after a massive lull, we are seeing a pick up in the overall capex cycle and that is going to bode well for sectors across the board – be it industrials, the construction space, real estate stocks or cement. How are you looking at this theme?
    We were positive on the overall capex cycle, especially on the private side. We are seeing the capex cycle continuously being driven by government spending and the recent Budget was clearly focussed towards improving the overall capex cycle in the country. One good part we have seen in the industry is that over the last couple of years, post pandemic, capacity utilisation has picked up with the improvement in demand.

    Also we are just witnessing the new capex cycle. Some of the larger companies – in some cement companies consolidation is taking place or new capacity expansion is being announced; in paints, new players entering the paint space and announcing new capex. These are some of the large capex themes that we can clearly see but if you look at it granularly, there are a lot of companies which are announcing capex.

    Somewhere that kind of fizzled out because of the commodity inflation which impacted demand but the capex cycle is here to stay for the next few years. One can play that directly through the capital goods space wherein we are very positive and we like L&T which is the proxy on the overall capex theme in India. It includes infra spending as well. We also like Siemens and ABB within the capital goods space.

    That apart, we also like the real estate space. We believe that the sector is in an up cycle for the next couple of years after witnessing a kind of consolidation for almost a decade. So, low interest rates, work from home led to pent up demand and now that cycle has picked up. We are more favourable towards residential real estate and prefer Macrotech Developers and Oberoi Realty.

    (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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