What is the outlook when it comes to the real estate sector? Where is it that you are seeing opportunity within the space, are you being very selective?
Real estate is not on our radar. There are very few companies that we would look at when it comes to the real estate space. They are plagued by problems of debt, high inventories, unsold inventories and now you have another phenomenon — that is the leasing side of the business which is contracting. So, one should stay away from real estate companies. But there are a few plays within the real estate space that one can look at potentially. Oberoi Realty is one of them because debt is not a problem with this company. While it may have been facing pressure on the rental side of its business it should be able to recover as we progress further into the quarters. But purely as a sector, real estate is an avoid. You should have very low or no allocation when it comes to the real estate companies, barring Oberoi Realty.
Given the kind of strength we are currently seeing in the broader markets, is it the time to expand one’s portfolio?
I believe it is a good time to remain invested in stocks because incrementally the new story that will be coming out from most of the companies will be a positive spin to their businesses. So it is all about where the upgrades are likely to happen. Upgrades will happen in a few sectors and will remain limited to quality companies simply because a tremendous amount of market share shift is happening. The weaker set of companies are unable to catch up in the current situation, not able to build up a digital world of their own, not able to have sufficient cash buffers to ride out this pandemic event and so on. These issues will mean weaker companies will continue to lose their strength and give up their market share to the larger brethren; quality companies is where you should be focussing on.
What is the outlook for IT; where is it that your preference lies here?
Within the IT space, the preference is clearly with the large IT names simply because deal win flow has been quite steady for them. In fact, margins are expanding for a lot of IT companies which tell you that many of these deals are large in size. Most of the midcap IT names have rallied quite strongly in the past two odd months. That rally has taken many of the midcap companies into a valuation zone where we are quite uncomfortable. So, therefore largecap names is where we would be. And remember largecap IT names have not really rerated to the extent one would have expected them to rerate given the positive cash flow generation. Time will soon come when they will start featuring in the top holdings of various mutual funds.