Stock from Realty and Auto Sector under Immense Pressure

Tue, 15 Nov 01:30 pm

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The Indian share markets continue to trade on a weak note during the noon trading session. Sectoral indices are trading on a negative note with stock from realty sector are witnessing maximum selling pressure.

The BSE Sensex is trading lower by 407 points (down 1.5%) while NSE Nifty is trading lower by 156 points (down 1.9%). BSE Mid Cap  and BSE Small Cap index are trading lower by 4.2% and 4.9% respectively. Gold prices, per 10 grams, are trading at Rs 29,358 levels. Silver price, per kilogram is trading at Rs 41,118 levels. Crude oil is trading at Rs 2,995 per barrel.

The rupee is trading at 67.02 to the US$.

Share prices of Housing Finance Companies (HFs) are facing a lot of pressure after the recent steps taken by the government to demonetize the 500 and 1,000 rupee note.

There is a fear prevailing in the street that as the real estate prices fall due to a clampdown on black money, LTVs (loan to value) for LAP (loan against property) loans will rise. This may make these stocks theoretically (and actually) riskier than they were looking earlier.

HFCs such as Can Finance Homes, Repco Home Finance, Bajaj Finance have corrected by 28%, 21% and 21% respectively during the past week.

Markets are currently treating all the housing finance companies under the same basket and punishing the stocks. However, it is imperative to note that different housing companies have different business models. Some cater to the salaried class personnel while others cater to the self-employed people. There are high chances that the salaried class personnel aren't as impacted when compared to self-employed personnel.

Other point to be noted is that as the real estate prices move downwards which was a rare phenomenon in the preceding few years, there possibly might be more demand for real estate, in-turn leading to a spurt in the demand for housing finance loans.

Hence, the current irrational behavior towards these stocks might offer good opportunities to buy into some of the fundamentally sound stocks in this space.

In another news update, JHS Svendgaard Laboratories, a contract manufacturer for toothpaste makers such as Colgate-Palmolive, Dabur India and Hindustan Unilever, Patanjali expects to see full capacity utilization after more than three years of under-utilization. The company stated that the full utilization is mainly on the back of strong demand from Patanjali.

The point here to note is that will Patanjali's ayurvedic products disrupt the businesses of leading FMCG players? Flagship consumer products of many MNCs are under threat. With Ayurveda being the new player in town, it has gained considerable market share from customers.

Patanjali do not yet represent an existential threat to incumbents, although it may become one for specific categories or brands. However, companies are no longer dismissive of the threats from such brands. This is a developing story that will attract attention for some time to come.

We in fact met up with the management of a leading hair oil player recently. He validated the view that 'Ayurveda' as a separate category is not a passing trend and is rather here to stay. But its dent in the market will be limited as Ayurveda has a 'functionality' aspect linked to it - it is mainly used as a form of treatment.

While it's too soon to jump to conclusions, this is definitely a space we'll be keeping an eye on.

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