Brigade, DLF and Sobha top picks from real estate basket: Anand Tandon, Independent Market Analyst

"Right now the entire market is somewhat expensive. Within that context I would argue that the correction that IT has offered has been reasonable given the fact that there is going to be a slowdown in the top line," says Anand Tandon, Independent Market Analyst.

The market is now waiting for the MPC meeting outcome. What is your own expectation and what are the key monitorables apart from the policy action and rate actions?
Regarding the MPC meeting we are expecting to see an increase in the repo rate but this time it may be a little lower. I think there is a lot of euphoria that has been built in on the expectation that the US has indicated that their interest rate hikes will be slower going forward but what I fail to understand is that the expectations in terms of the level at which it will stabilise has not changed a lot over the last six months.

So it is pretty much still in the same a little over five kind of range. And there is no indication that that will be cut down anytime soon so we have to wait for the cut down to start assuming that there will be an expansion in the market.

That said I think the market is looking for positive triggers so anything that is deemed as positive is good. As I said in the domestic market we expect to see a gradual increase in interest rates coming through maybe a 35 to 50 bps is what I would expect to see though we are still at a negative real interest rate scenario which is not particularly a very tight situation to be in.

What about the entire IT pack because it is very evenly poised in terms of the headwinds and tailwinds? There is rupee tailwind but then that has been factored in, margin is expected to improve on account of attrition coming off but then revenue growth is expected to slowdown, what does one do in this scenario? Is it time now to nibble into the IT names after the correction or you should wait for the time correction to continue?
Right now the entire market is somewhat expensive. Within that context I would argue that the correction that IT has offered has been reasonable given the fact that there is going to be a slowdown in the top line. We are looking at again a single digit kind of top line growth coming through for most companies. That said there does not seem to be, despite all the large cuts that we have seen in the US, any major slowdown that one is witnessing in terms of demand coming in from the companies and as a consequence I would think that this is still a relative safer place.

The alternatives for you are taking a punt on metals on the basis for example that China is opening up but you have to remember that there has been a recent paper published that stated very clearly that China’s growth from here on has to be based on consumption and not on infrastructure spend. So to assume that the growth will come again in the form of spend on infrastructure and consequently commodities should be going up is I think being a little naive in terms of the positioning.

So if you were to look at it in an overall context I think you are still better off sticking with the things like financials largely in India but otherwise anything to do with high end consumption. And if you are looking at exports maybe IT and perhaps you can start nibbling at pharma.

Wanted your take regarding the entire real estate basket plus the home building space, what would your top bets be?
Real estate has done reasonably well over the last several quarters. I think it continues to remain a decent place to be. I think the demand likely will remain strong. One will witness a slowdown in terms of the building itself but in terms of sales I would be very surprised if you do not have couple of quarters at least of reasonably good numbers coming through.

So almost anything that you want to buy in the midcap space especially those which are good brand names will probably do quite well and, of course, REITs continue to remain reasonably high yield in terms of the debt market if you want to look at. So Brigade for example or even a DLF or a Sobha look like good companies that we may want to look at.

Wanted your take regarding these defence names. Cochin Shipyard and Mazagon Dock did well. Given the fact that these stocks have run up massively already and there is still that question of whether the green shoots will turn into something else or not does it merit a buy for the long term?
It purely depends on the order book that they have, at least Cochin Shipyard, etc, will have a visibility going out for say a few years.

But the real question is that it is a single buyer market and therefore it will depend to a large extent on the kind of
allocation that the government does, at the levels at which they are and I do not think you have a great margin of safety. But it does not mean that these companies cannot continue to do well or new orders cannot come through.

I would argue that India has to still spend at a lot more in terms of defence acquisitions and one of the places where they have done a fairly good job of indigenisation is actually on the naval vessels and coastguard vessels, etc.

So the Shipyards may be a decent enough space but by and large they are not cheap and whatever quick money was to be made has already been made. So at this time I think you may want to take a pause and wait to see how it goes.

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