Varun Goel, Head-Equity at Nippon India AIF spoke to CNBC-TV18 and analysed the fundamental side of the market as well as specific stocks and sectors.
On the real estate sector, Goel said, “We believe, residential real estate, after 7-8 years of consolidation is right for a strong performance.” He cited three reasons for the strong performance. One, he said, there has been a time correction if not a major price correction in the last 7-8 years and the second, he said, is affordability. “We calculate your EMI to take home salary ratio. This ratio had touched almost 48-49 percent in 2018. Today, as we speak, it is down almost 27-28 percent.”
Another important factor that is helping is the low cost of home loans. Today one can get on loan at 6.7-6.8 percent, which is also enabling the recovery in the residential real estate space, Goel explained.
He added that a booming export IT sector is helping people’s salaries go up. “So if you see 5-6 million people in the IT industry, they are getting very aggressive salary hikes. If that trend continues, one of the biggest items that people like to purchase is a house,” he said, adding that schemes, discounts and stamp duty waivers by various state governments are also helping.
Nippon India AIF’s is that residential real estate should do well, and along with it the ancillary space, which is the building material companies, he said. The tiles, wires, and cables companies, the home finance companies should see a strong recovery considering the very easy liquidity that is available in the market, Goel said. “So, the whole housing and integrated sectors should do well,” he said.
Commenting on telecom, he said the sector has gone through a very tough phase of consolidation and added that what was a 7-8 player market has now come down to 2-3 players with the third player finding it very difficult to survive.
Goel said Nippon India AIF believes telecom will remain a 2-3 player kind of market and significant pricing power is going to come to the industry.
“Today, if you see average revenue per user (ARPU) is close to around Rs 130-140 for the industry as a whole. We see this number moving closer to Rs 200 and even higher in the next 12 to 18 months. So what will happen is these incremental ARPUs will directly go to the bottom line of these companies. So we see a significant increase in profitability for all the two or three new telecom players going ahead. And that will definitely improve the return ratios that will give a boost to the free cash flow generation. We expect a much better time for the industry as a whole. So we remain quite positive. We believe this is one space amongst the large-cap company which can possibly deliver the highest or the best returns in the next two to three years,” Goel explained.
Meanwhile, he said the service sector has been impacted very badly and that the company hopes for the revival of sectors like travel, tourism and eating out joints provided things are under control and there is no severe third wave.
“We have seen increased interest in this space, whether it is travel, tourism, whether it is airlines, all these companies should benefit out of this trend of people going out, or travelling and purchasing things. Also, we believe that a lot of discretionary consumption has been impacted because of the fear and uncertainty due to COVID. So, whether you see two-wheelers, four-wheelers or consumer durables, like air conditioners, washing machines, TVs, all these things, we believe should see better times ahead. We hope we have a good festive season and the disease gets under control, and people do go out and buy, he said, adding that the festive season is very crucial to see if demand is really reviving.
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