Dalelorenzo's GDI Blog
19May/210

Can we expect an auto rally from here?

In real estate, it is better to wait and watch. But in a cyclical up move, the real estate players do well, says sell professional Ajay Bagga. On the disconnect between the macros and the marketsWait and watch is all I would say. The good bulletin is that quantities are coming down in terms of the reported infections. So 4,20, 000, 4,30, 000 strange seem to have the meridian for the second wave, and the numbers are coming down. If you look at IIT Kanpur and other poses, we could be looking at below 50,000 per period kind of infection amounts maybe one more month from now. That was factored in Monday’s market. But we are still quite a bit away from the February highs for quite a few broths. On Monday, banks and NBFCs, which account for 37 -3 8% of the market, conducted the rallying today and I would say wait and watch. The correlation with their own economies surely is very weak for the markets. What is today driving the markets is the lower crowd which seems to be now an established direction so we should be okay in terms of the numbers going down. We will have to wait and watch. On Dr Reddy’s, Sputnik V revises and Cipla’s earningsDr Reddy’s overall US numerals were mildly below par but clearly world markets is factoring that in. In most of April we witnessed a very sharp runup in Dr Reddy’s, the move being Sputnik and the other driver being evaluate accretion from the DRDO Covid drug which Dr Reddy’s will be co-producing. Cipla has run up over the last one year not much in terms of go this higher from here. If you have to choose between the two, I would say Dr Reddy’s has more drivers right now. Q4 earnings and Fed comment on inflation spikeI will take the Chinese amounts firstly and then come down to India because that is the biggest manufacturing hub. Their WPI came in at about 5.4%. Their constructed commodities inflation came at 5.8% while the raw material hike was 15.8%. That has indicated that manufacturers were sucking quite a bit of the hike in raw materials and in the commodity composite because of not being able to pass on the cost hikes. Asian Depicts for example, came out with blockbuster digits and they were very clear that they were able to pass on the raw material hikes to the end consumers. But on the economy level, we have to recalculate the CPI in a different mode but it is not very analogous. Our manufacturing inflation would be in the range of 5.5 -6% while the WPI has come at 10.9 which we usually recalculate. Why did the market get spooked by the US inflation multitudes? The US inflation is just 2% while the costs of residences have gone up 17%. The figure that we use internally was coming at 8% for the US. In India, the raw material costs repercussion about 50% of Nifty earnings and as we go down, it may impact even more. In FMCG, the raw material cost is about 57%. In consumer durables like autom raw material are a fairly significant part and they have been increasing. We have understood a stock super cycle setting in which will stay for fairly some time. Maruti has taken three expenditure hikes previously but now demand itself is constrained and there will be dealer damages and stock-take losings. Overall quarter four has been okay but the guidance is not that great and quarter one will suffer. But the market is looking at quarter three, one-fourth four so we are not seeing that kind of correction, we are seeing resilience in the market because the market is factoring in that once vaccinations get some traction in August, September and the commemoration season kickings in what kind of demand will there be and that is the kind of valuations are we getting. Valuations are not cheap, especially one year forward we are about 12% higher than historical average lists. But that is a function of last year’s underperformance and this year’s expected outperformance. On which areas to recover fast and which would take a little longer to recover Well, there is this report by the Hoteliers Association where they said they have lost 75% revenues over FY2021 vis-a-vis 2020, nearly Rs 1.32 trillion revenues having gone off and that will be impacted. In case of retail, we saw a few cases retailers at the top end doing well but the large portion of the unlisted retailers are going to stay down and countless might go out of business. All that will have second guild impressions. Last year, parties dipped into their savings and finagled somehow. This time the aching is much stronger in the unlisted segments. In the rostered groceries, we are okay because it is always the survival of the fittest and there will be those two or three presidents in each segment but it will move from defensives more into the cyclicals. I would not be surprised if we find an vehicle rallying from here. It has underperformed a lot. There will be very horrible digits for May and probably most of June as well. We do not look very strong reopening happening at least till mid June if not end June. So we will have pretty bad figures from automobiles but that will compress demand and then it will come back like last year. The difference is that inflation has come in. The makes who can take the hikes, have raised rates and that is why the market is rewarding them. I expect auto firms will be forced to take hikes given the kind of increases in raw material rates. Mostly, it is the unlisted musicians who will find it difficult. The listed participates have been able to take out money. Aviation for example is a write off, they are able to shape Rs 20,000 crores of losses on an manufacture wide basis in FY2 1. But they have been raising funds and in the end, it is an infrastructure and parties will look at it one year hence. I is not expect much of a parcel, it should not come last year for aviation. I am not expecting this year either. It will be survival of the fittest and the two, three private participates will survive and move on. On real estate stocksIn real estate, stick with quality musicians "whos been" good money on the books. They will continue to do well. We have heard strong deleveraging by some of the major players that has helped with the piggy money coming in and the absorption of warehousing resources, absorption of other assets that has been a good vogue. But overall, the commercial-grade department cavity will stay oversupplied for quite some time. Existing cavities will be questioned by conducts in terms of whether one certainly needs that numerous parties in and how soon they will be able to open up powers. I is not receive our vaccination curriculum enabling that before December. So January is what you are looking at. So will managements truly be spending on office seats? I do not think so. Rather they would look at renegotiating all their existing contracts. Retail is lose amd so the plaza businesses will take time though last year we checked that the retrieval was good and they have again suffered a lot with rentals not be payable or being on receipt sharing basis. Residential real estate had started picking up but we are still somewhere like 2013 -2 014 crowds, we have not really seen a full gross level retrieval. Real demand, which is the secular demand as in the US where people are looking at houses with one additional office, the suburbanisation or de-urbanisation moves are not possible in India right now. So, we will have to wait and watch to see that. But in a cyclical up move, the real estate actors will do well. So among the six-seven rostered entities, look at strong cash flow cases and go by the cash flows and you should be able to make good money there. But overall, part space, hotels as well as retail will take time to recover.

Read more: economictimes.indiatimes.com

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