As India prepares for the festive season with caution, thanks to the pandemic, market guru Saurabh Mukherjea is bullish on the realty space on Dalal Street but suggests playing the theme indirectly. "Whether it is for taking a home loan or for building a factory, we have never seen a credit cost so low in our country... Home loans at 6.5-6.6 percent are something new, and that is driving activity in the house buying market," he told CNBC-TV18.
Mukherjea is playing the real estate theme through the home building material space. His favourite picks: Asian Paints, Pidilite and Astral Poly.
"We own companies like Asian Paints, Pidilite Industries and Astral Poly in some of our portfolios, and we are looking to add more building materials company... Although there is the formalisation and the real estate developer market and there is consolidation, it is very difficult for real estate developer anywhere in the country to deliver a return on capital significantly above the cost of capital," said Mukherjea, explaining his take on the theme.
His bullishness on the housing market comes at a time when many experts are hopeful of an uptick in the upcoming festive season. They see an unprecedented opportunity marked with high demand and low property rates.
Lower interest rates in the country are expected to boost sales in the sector, said Mukherjea.
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"The building materials industry we think will carry on booming right through the next two, three or four years as people buy more flats, more houses, paints and pipes. And perhaps other building materials companies should do well as this home building recovery continues,” said Mukherjea.
Typically a busy period for real estate developers, the festive season sees high activity with companies aiming to tap demand and capture greater market share.
Anuj Puri, Chairman of property consultant ANAROCK, is hopeful that the coming festive season will bring significant traction in the housing segment.
"Festive Season 2021 will set a new benchmark in customer orientation where the entire industry will pull together to harness latent demand for homes," Puri told CNBCTV18.com. Lenders are competing to gain a larger market pie in the home loan segment. "As always, competition is good for the market, and especially for consumers," he said.
Meanwhile, the real estate sector has beaten the overall market by a wide margin on Dalal Street. The BSE realty index has soared 117 percent in the past year, far ahead of the Sensex's 54 percent return.
Here's how the realty pack has performed in the past one year:
| Stock | Return (%) |
| Sobha | 220.4 |
| Indiabulls Real | 177.2 |
| DLF | 145.4 |
| Brigade | 143.6 |
| Godrej Properties | 125.9 |
| Oeroi Realty | 80.9 |
| Sunteck | 79.1 |
| Prestige Estates | 75.1 |
| Phenix Mills | 59.9 |
| Mahindra Lifespace | 22.1 |
Adhidev Chattopadhyay of ICICI Securities told CNBC-TV18 the recent surge in the stocks of property developers factors in their current project portfolios. Realty companies' net asset value (NAV) is expected to rise further due to their strong project pipelines.
Mukherjea also likes the recent surge in the stock of Alkyl Amines Chemicals and said the company is well-positioned. Alkyl Amines is a specialty chemicals maker that serves a range of industries including pharmaceuticals and paints.
Explaining the rationale behind his Alkyl Amines bet, he said India's active pharmaceutical ingredients (APIs) industry is expected to double in the coming 2-3 years. "China's API production capacity is 10 times that of India... Even if 10 percent of the Chinese API capacity shifts to India given its China Plus One strategy, our API industry will double," he explained.
China Plus One is a business strategy to avoid investing only in China.
Alkyl Amines is India's largest supplier of aliphatic amines, used by API manufacturers. The country's aliphatic amines market is very difficult to enter. The company's profits have been compounding in the last 3-4 years at around 35-30 percent, and free cash flows compounding at 40 percent. It is an efficient, well-run company in absolute pole position to benefit from the China Plus One shift, he specified.
Alkyl Amines Chemicals shares have retreated after touching a peak in April. The stock has given a return of 28 percent in the past year.
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