Real Estate Stocks: Pessimism Overdone, Midcap Correction Presents Long-Term Opportunities
Despite a broader market recovery, the real estate sector has remained under pressure, even as sales updates from several developers have stayed strong. Market participants are grappling with the disconnect between operational momentum and reported earnings, which have appeared weaker in recent quarters.
Speaking to ET Now, market expert Sandip Sabharwal said the current pessimism around real estate stocks may be misplaced, largely due to the way accounting works in the sector.
“A lot of the reported earnings in real estate is not the way to look at it. You have to look at what sales data they have and what the future sales proceeds will be, because of the way the accounting works. Quarter-on-quarter reported profit looks different,” Sabharwal said.
According to him, the negativity surrounding the sector appears excessive at this stage. While he does not currently hold real estate stocks, Sabharwal indicated that the ongoing correction is throwing up selective buying opportunities.
“I would be looking to buy some of the good ones in this kind of correction. Stocks like DLF, with its strong balance sheet, zero debt position, strong cash flows and decent sales data, look well placed. Some other companies like Godrej Properties and Prestige have also come to decent levels. Some of them are in the buy zone at this stage,” he said.
Microfinance Slippages Ease, But Selectivity Remains Key
ET Now also flagged recent earnings from lenders such as CreditAccess Grameen and Bandhan Bank, where easing slippages and improving asset quality have helped stocks gain traction. While acknowledging that stress in the microfinance segment has started to abate, Sabharwal remains cautious.
“There is a general view that slippages on the microfinance side have reduced and from next year growth could come back. From companies that suffered due to the microfinance book, next year onwards that could potentially become a tailwind. For people looking at that, it could be an opportunity,” he said.
However, he made it clear that microfinance is not a space he is actively pursuing. “I would not be specifically looking for microfinance opportunities,” Sabharwal added.
Preference for Large Banks, Select NBFCs
Within the lending space, Sabharwal said his preference remains with large, well-established banks and select non-banking financial companies.
“On the largecap side, these are standard banks which you keep buying whenever there is a dip. ICICI Bank, Axis Bank and SBI we hold. Even HDFC Bank, after the recent correction, is not looking bad at around the 920 levels,” he said.
Among NBFCs, he highlighted holdings such as Mahindra Finance, L&T Finance and Manappuram Finance, while also pointing to opportunities emerging from a strong commercial vehicle cycle. “CV lenders could also potentially offer opportunities,” he noted.
Midcaps, Smallcaps Offer Best Risk-Reward Over Two Years
With the Nifty witnessing a mild correction and the broader market seeing sharper drawdowns in individual stocks, Sabharwal believes the best opportunities now lie outside largecaps.
“Right now, I think the pocket of opportunity lies in midcaps and then smallcaps. While the midcap index may not have fallen as much, many individual stocks and sectors have corrected 50–70%. Some of them may not recover because they were purely story-led, but many others will,” he said.
He pointed to consumption, infrastructure and select financials as areas worth tracking. “Some consumption names—consumer durables and non-durables—could be sectors to look at. Some infrastructure and construction companies are looking cheap and could come back. Some NBFCs and even smaller banks could offer opportunities, though I do not buy smaller banks myself,” Sabharwal said.
Summing up his outlook, he stressed patience as the key ingredient for investors navigating the current volatility. “We have seen a severe selloff. There could be significant opportunities for people who can stay patient for 18 to 24 months,” he said.
