Tata Steel has been on your accumulation list. How bullish are you on specific leaders within the commodities basket? What is the opportunity there?
As far as the commodities are concerned, the factors which are driving the commodity are a combination of global plus domestic. The global factors have to do with the huge amount of liquidity which is chasing the asset classes and which has caused some bit of commodity reflation. The demand improvement on the other hand will be a bit of a mixed outlook, given that most countries globally are still facing the challenge of pandemic.
In India, some bit of that global optimism has got built into the price band. These are all global commodities and the visibility of these factors sustaining is very difficult to credit. I would say that within domestic cyclicals, the cement sector remains much preferred till we have the visibility of liquidity continuing. The metal sector outlook may be good but if a long-term investor has to play the domestic cyclicals, cement, capital goods may be the other option to look at.
Would you be able to put a number in terms of overall return expectation? Should we expect single digits or double digits, given that the momentum that we have been seeing is a reasonable expectation?
Near term may be a bit of a challenge in terms of the return expectations. The investor should come with a low return expectation for a year’s time period. Once we see that the earnings growth is sustainable, it will provide more support to the return expectation. The long- term outlook remains good. I would not like to hazard a risk as far as the single digit or double digit returns one should expect.
In the short term, the returns remain very volatile. It is very difficult to predict the events. The world has become very volatile. In the long term, we are in a good shape and it is just a matter of timely implementation of various policies which have been announced. Hopefully that will drive the broader economic recovery and should be positive for the equity over a long period of time.
Would you be an advocate of a decent real estate exposure?
We have been having indirect exposure to real estate over the last many years through some of the real estate proxies like building materials and the other indirect beneficiaries. They went through a decent period of underperformance and now there has been a very smart uptick as far as the real estate is concerned. This has got supported not only by the low interest rates in the economy but states have given massive support as well and that momentum is likely to continue for at least a few months.
Demand is seen from a section of people who wants to upgrade to new housing given the fact that work from home is becoming an important element of the overall process. The visibility of the real estate sector looks pretty okay at least for the next few months, beyond which we will take a call whether it is sustainable. Right now, it is more driven by requirements which select groups of people have come up with and interest rates are also supportive. It is going to be more a watch-as-you-go kind of an outlook.