“January-February are months where we need to watch out because many of the previous falls of the markets tend to happen in those months. I would still tread cautiously despite the smart recovery we have seen over the last three days,” says Sandip Sabharwal , analyst, asksandipsabharwal.com
Usually December is such a quiet period but certainly not in 2021. Are we having the Santa Claus rally?
Someone who did not look at the gyrations of the market over this month and slept off on 30th of November and got up today would think that it is a mild month, only because Nifty is up some 60 odd points for this month. December is a month in which typically markets do not decline at all or decline very little. That has been the trend historically and typically in the last week of December, we see the markets pick up even if they have fallen. I think that pattern is quite evidently repeating.
However, it does not change the overall view that next year is not going to be so easy for making money because markets even if we benchmark it to 18,500 where it has fallen from, are still not cheap in the context of the fact that we could see interest rates move up and liquidity dry up from what it is right now. So January-February are months where we need to watch out because many of the previous falls of the markets tend to happen in those months. I would still tread cautiously despite the kind of smart recovery we have seen over the last three days.
With people going out, ordering in, which was a means of life throughout the pandemic and various lockdowns is coming down. Could price hikes dampen volumes for a Jubilant or a Westlife ?
Yes because this space is reasonably price sensitive and 5-6% price hike is not very insignificant because typically these companies do not take such large hikes. They normally end up taking 2-3% hike and so there could be an impact on demand. These companies held on for a long time, not hiking rates because consumer sentiment was somewhat muted but now they have taken the plunge to protect their margins ans so that is fine.
As far as something like Domino’s goes, once the numbers come out this quarter, it will become evident. Like you said, going out has become more of a vogue now and people would like to go out to restaurants and eat. But in places like Mumbai, because of the 50% restriction on tables, one don’t often get bookings. So the entire eating out space is complimentary. During the pandemic, ordering from the QSRs was in vogue.
Now as people start going out and eating out also, how does that impact the volumes of something like Jubilant or Domino’s is something we need to see. My guess is that there will be some dampening of volumes for sure because the growth cannot continue the way it was and as such, if we look at it on pure valuations, although it has come down from Rs 4,500 to Rs 3,500, the valuations are still not compelling.
A similar thing is going to happen with real estate as well. Developers in Mumbai or Maharashtra do not have that benefit of the stamp duty cut anymore. Also inflation is impacting them as cement, steel prices are up as are labour costs. So prices would now go up a bit. Is that going to impact and dampen sentiment in the realty sector?
Real estate has gone through 10 years of hibernation where price moved down before starting to move up over the last one-and-a-half years. So overall, next two years should be much better. But the kind of profitability improvements which these companies saw just coming out of the pandemic, might not happen because of the cost pressures coming through. It will be tough to pass on price hikes very easily.
So on one hand, there is a huge cost push. Cement not so much but steel, labour cost hikes are quite significant. On top of it, from next year, the ultra low rate of interest might not be available. There will be some uptick starting on interest rate cycle and real estate demand is very sensitive. The most rate sensitive segment is real estate and that is something which we need to factor in.
So the stock prices need to give us better entry points. They will still be […]
source Tread cautiously; watch how market behaves in Jan-Feb: Sandip Sabharwal
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