6 real estate and capital goods stocks to bet on: Rahul Shah

One should play insurance as a basket. This sector will continue to remain expensive. I believe that in the next couple of years, insurance companies will keep on growing and at a faster pace, says Rahul Shah, VP-Equity Advisory, Motilal Oswal Financial Services.

We are closely watching out for Infosys and the Street is pencilling in that the revenue guidance will be anywhere between 13% and 15%. The dollar revenue growth was seen 3.9% higher in cross currency terms and margins are likely to dip. What are you expecting from Infosys?
The way most of the IT companies have delivered their Q4 numbers and the way the TCS numbers came up, we are anticipating that Infosys numbers would be in line with Street estimates. The guidance is most important on the margins front.

In today’s market session, we are seeing that the midcap IT is shining again. The Infy numbers should be more in line with what the market is sensing. There will not be any major surprises. But the more important thing to focus on is the management commentary and the guidance going forward from here.

How are you looking at the buzz in the real estate basket? The Street is betting on a revival. What would you attribute it to?
Most of the real estate stocks are at 52-week high. Real estate is a demand driven market. After a very, very long time we have seen this kind of demand coming. My view is that the large players are going to be top bets in terms of the way they are going to benefit in terms of the balance sheet. But the stocks look expensive and they will remain expensive. Among larger cap, high PE stocks, we like Oberoi Realty.

Prestige Estate is another stock we have been liking. There could be some more stocks which have underperformed vis-à-vis most of the other stocks. So, there could be a 15-20% runup to catch up in Prestige Estate as well. Thirdly, other small names like Brigade Enterprises and Kolte Patils of the world could also see a good move from current levels. It will do well going forward as well but just to add to it, the housing finance companies (HFCs), also should look very attractive.

If the real estate sector is doing well, the HFCs should do well also. My preference is for large names like HDFC Limited which has relatively underperformed the market. In the mid-sized space, I would like to bet on Can Fin Homes which has a reasonably good balance sheet and a very strong asset quality.

Zomato IPO opens tomorrow. Is it a subscribe or not?
These are all new-age businesses. If we do not participate in these kinds of new-age businesses, we would not make money out of it. I am for a subscription. From the valuation perspective, the stock looks expensive. The stock will remain expensive and there will always be a first mover advantage getting into these kinds of businesses.

So I would apply for it and ask investors also to apply for it not only for the listed gains but also maybe to keep it for a little bit to see how the business shows up and what new other categories these new age businesses are getting into.

Within the capital goods space, which companies do you believe will see earnings revival in this quarter?
The entire capital goods sector, starting with businesses like L&T is top of my mind. L&T could give at least 20% upside from here, followed by Siemens and Cummins. Those are the three stocks which I personally feel should benefit but L&T should be the best beneficiary.

Where do you stand on the entire insurance play? Is SBI Life the most valued one?
One should play insurance as a basket. This sector will continue to remain expensive. I believe that in the next couple of years, insurance companies will keep on growing and at a faster pace. SBI Life is followed by Max Life which is relatively cheaper in terms of the valuations and the leader HDFC Life as well. I would create a basket of all four companies which are the listed players with higher weight on SBI Life and with ICICI and HDFC as part of the portfolio as well.

If you were to cherry pick some of the marquee names within the auto space that could see long-term recovery, the impact of the pandemic being factored in, what would you look at?
In the auto space, passenger vehicles would be the better way to play it. Maruti is one stock which I would be looking at. In terms of valuations, it is set for growth from current levels. Secondly, obviously, we have been hearing a lot of noise about the semiconductor chips from the last couple of weeks. In that space, I would play on the rural recovery with M&M as this is relatively cheaper in terms of valuations. There could be another 15% upside in M&M.

So these are the two large players I will go for. Secondly if I have to play for the global recovery, in passenger vehicles, Tata Motors is one of the best plays. But obviously there is some correction and the stock might remain under pressure for a couple weeks or maybe months. But if you have a longer term horizon of maybe a year or more, then this is one of the stocks one should have in their portfolio.