Riding with the tide
02nd October 2021
Dear Fellow Investors,
Hope you are reading this in the pink of your health.
“Dil hain ki manta nahi
Market hain joh rukta nahi”
As the Sensex touched 60K for the first time and Nifty climbed toward 18K, Indian investors celebrated with high spirits and shining portfolio returns. We reflect that it is just a number in our journey of becoming a multi-trillion economy and many milestones are yet to be achieved before the bull run subsides.
The trend in markets during August and September was significantly different from what was seen over the past few months. For a change, the large caps caught up and significantly outperformed the broader markets. With the Nifty 50 logging in a sharp 13% gain over the two months while on the other hand, S&P BSE 250 Smallcap reporting a mere 3.50% gain.
This ~10% divergence in two months between the large-cap vs small-cap was the highlight and should be thought upon. Volatility can offer a window of opportunity for those with the appetite to bear short term risk and eye to separate the wheat from the chaff. Stock selection is important here.
The world is seeing the healthiest GDP growth rates in recent history. The corporate earning numbers and production data have been robust. The year has seen some of the largest IPOs with many more scheduled over the coming months.
This festive season is expected to be strong. Easing of restrictions and increasing vaccination coverage are likely to boost private spending on goods and services alike (calling for higher revenue for industries and government’s tax collections too) including travel (Average Room Rates), tourism (Travel Tickets), recreational activities (Cinemas), driving a broad-based recovery in collective demands.
The average salary increment in India is expected to be 8.6% as per a survey done by Deloitte’s Workforce and Increment Trends Survey. Salary hike particularly in IT and other services sectors should lead to an uptick in urban demand.
Global liquidity continues to be strong and we expect record FDI flows into India to continue. Talking in terms of Asian Markets, we expect the share of foreign inflows into Indian equities to improve due to negative news from our peer markets. Foreign investors possibly will be drawn by the stable market scenario and growing economy.
The recent clampdown by the Chinese government on their tech and Real estate companies has only strengthened the case for higher inflows into India. We believe that companies with noticeable earning growth will consolidate and should again start to attract investor interest. We expect the markets to be firm as we head forward.
Government infrastructure spending and private CAPEX showing signs of green shoots and should aid GDP growth.
The real estate sector showed recovery across the country and all price segments supported by favourable factors such as vastly increased affordability, government duty cuts, attractive prices offered by developers, lucrative payment plans, low-interest rates and favourable state and central government initiatives. We are witnessing the highest ever sales traction in projects of most of the real estate developers leading to improvement in their cash flows.
Market share of top 9 listed developers further improved in FY 2020–2021 to 11.9% (+270 bps) and is now at an all-time high, and sales of these top 9 developers went up by 23% and highlight the performance differential. Given the low absolute market share at 11.9% of Tier 1 city sales and 9.5% of pan-India sales, the market share accretion story has a long way to go. As an example, the top real estate developer’s market share in China is near 35%.
Sales patterns across developers show that nearly 40%-50% of sales came from inventory monetization and the balance from new launches, highlighting the importance of late-stage inventory in the mix.
Overall sector volumes, despite the gains, are still down 26% from peak 2010 levels. The residential down cycle that started in 2011 ended in 2017 are now well placed in the new upcycle. This cycle is backed by multi-year high affordability across major cities and mortgage rates that are now nearing a ‘psychological’ low 7% handle.
Market consolidation continues to remain accelerated post-COVID-19 and companies with a Brand name, historical project delivery track record, strong balance sheet, relatively easy access to capital and project presence across price points stand to immensely gain market share.
Despite the short-term dislocation caused by COVID, we believe that the long-term trends are intact, and will lead to significant opportunities in the Real Estate Sector. The emergence of nuclear families, rapid urbanisation and rising household income are likely to remain the key drivers for growth in all spheres of real estate, including residential & commercial. Rapid urbanisation in the Country will continue to push the growth of real estate. By 2025, Real Estate will contribute 13 per cent to the Country’s GDP.
Closing over with our final comments on the equity markets, we think looking over the shoulder, calculating in percentage returns it looks like a long steep climb from last 1–1.5 years, many have become sceptical with doubts about going ahead further. We recommend keeping a calm mind, think well through things, and be patient. Avoid hasty decisions and keep playing according to your plan. Research well before investing.
Leaving everyone with a thought -
“The problem with long-term investing is the short term thinking.”
– Richard A. Ferri
“Earth provides enough to satisfy every man’s needs, but not every man’s greed.”
– Shri Mahatama Gandhi
May our lives be guided by the good vision of the father of the nation and enlighten us to lead a better life.
With Respect,
Chandranshu & Priyaanshu
+91–9953726305 & +91–8800967088
cachandranshu@outlook.com priyaanshu@live.com
