In the context of relentless cyclicality in the markets, one investor’s meat is another investor’s poison. The flux has now taken a toll on the banking and financial services industry (BFSI), which was till recently the cynosure of all eyes. BFSI’s prime status has been usurped by the likes of real estate. The latter, incidentally, was considered a no-go area just a few quarters ago.

Trends pertaining to the decline and bounce-back are captured in the recent performance of sectoral indices, reveal National Stock Exchange (NSE) figures. While the financial services sector, represented by the 20-share Nifty Financial Services Index, has delivered a mere 9.71 per cent in the past year, Nifty Realty, which has 10 stocks, has yielded a much higher 39.09 per cent (12-month period ending March 2022).

The situation, it is felt, will now prompt a discreet round of value-buying in select BFSI stocks. In particular, some of the smaller market capitalisation companies are already on investors’ radar. These range from mid-level PSU banks and non-banking finance companies (NBFCs) to the recently-categorised small finance banks and sundry newbies in the BFSI space, which has expanded with the inclusion of life insurers and fintech firms.

Banking, which accounts for a major share of the BFSI space, has recently experienced strong headwinds. Public-sector banks have undergone a severe bout of consolidation, resulting in contraction and the number of PSU banks shrinking. The non-performing assets (NPA) scenario continues to hurt significant parts of the lending industry. While bank managements are constantly seeking to address the NPA issue, the market is waiting for a meaningful rationalisation.

The real test lies ahead as interest rates change. The Reserve Bank of India (RBI), which has maintained an accommodative stance for long, is expected to increase rates in the coming days. It has already given out a firm signal, and may outline its strategy in the next monetary policy announcement. The impact of rate increases would have to be finally transmitted to the consumer, which may not immediately favour the banking community.

Real Estate: Surprise Package

Real estate, however, has lately witnessed some serious buying and trading interest, especially in stocks of medium-sized companies. The sector’s performance over the last one year has surprised many, particularly those who had discounted it for long as a relative under-achiever.

Real estate, however, now stands close to other smart performers–metal, energy and IT. The last two, for instance, delivered 46.33 per cent and 42.96 per cent, respectively, during the period in consideration. These numbers propel them to nearly the peak of the smokestack. Real estate has beaten many other segments (auto and pharma, for example).

Investors’ interest in realty is currently most apparent in mid-level counters. The Nifty Realty index is led by prominent players like DLF, Godrej Properties, Oberoi Realty, Phoenix Mills and Macrotech Developers. These account for about 75 per cent of the total weightage. DLF alone commands a little over 24 per cent, while Godrej Properties comes next with about 20 per cent.

There are a number of smaller real estate companies that have not made it to the NSE but are said to have considerable potential, and may yet gain traction. Nothing, of course, can be guaranteed in equities, and investors must conduct thorough research before selecting their counters.

Among the smaller entities (yet pursued aggressively by investors) are the likes of Indiabulls and DB Realty. These have found new takers. Adding to the belief is raw sales data and a number of factors working in their favour that have collectively fortified the positive inclination. These factors include the government’s orchestrated stance on low-cost housing, relatively cheap mortgage loans, and the resurgence in acquisition strategies in tier-II and -III centres.

The mortgage market has, over the past few quarters, recorded considerable growth. This has been corroborated by industry leaders like HDFC reporting a record number of retail loans in the past year. The consuming class is believed to have found greater access to loans, thanks partly to newer delivery platforms. A number of home loan outfits, as well as business verticals run by integrated players, not to mention banks, have gained from the trend.

The author is Director, Wishlist Capital