The rising interest in the beaten-down stocks was partly due to the passage of the Real Estate bill, and on the back of relaxation of rules on REITs.
MUMBAI: The real estate sector has gained favour among investors in the last four months with most stocks gaining 7-95%. The rising interest in the beaten-down stocks was partly due to the passage of the Real Estate bill, and on the back of relaxation of rules on Real Estate Investment Trusts (REITs).
“There are a lot of external environment variables which have been turning favourable of late for the real estate sector. Interest rates have been on a declining trend, and the recently passed real estate bill has brought a lot of clarity about execution, sales cycle and operational areas,” said Santosh Yellapu, senior research analyst at Angel Broking.
On Wednesday, the sector was again in the limelight, led by realty major DLF that surged 8% to Rs 143.95 after ET reported that billionaire KP Singh and his family have decided to wipe out DLF’s debt in a two-step transaction. Hopes of a boost in demand fuelled by the Cabinet’s approval for recommendations of Seventh Pay Commission to raise salaries of government employees also bolstered the sentiment, and sent the S&P BSE Realty Index up by 3% to 1497 points.
Among other gainers, Unitech jumped 8% to Rs 6.32, HDIL gained 3% to close at Rs 99.30, Sobha rose 2.8% to Rs 317.95 and Indiabulls Real Estate gained 1.5% to Rs 88.90. DLF, Indiabulls Real Estate and Housing Development & Infrastructure (HDIL) were not available for trade in the F&O segment on Tuesday and Wednesday as their derivatives contracts crossed 95% of the market-wide position limits. DLF and HDIL will move out from the banned F&O list on Thursday.
The realty index has gained 11.4% so far this year outperforming the Sensex, which has gained 2.4%. In 2015, the sector index fell 13.5% against a 5% fall in Sensex. However, fund managers are sceptical of the recent rally. They believe a turnaround is not here yet as most companies are grappling with high inventory, slowdown in demand and high debt.
“The demand-supply situation currently is not in favour…While stocks may remain volatile, the sector is not completely out of the woods,” said Ravi Gopalakrishnan, head-equity at Canara Robeco Mutual Fund.
Echoing a similar view, G Chokkalingam, founder, Equinomics Research & Advisory said there has been no change in sector fundamentals despite the surge in stock prices. “As per our study of 47 realty companies, their revenue was up 4% in FY16 and their operating profit was down 8%. Many companies have inventory levels which are at 5-10 times their annual sales,” said Chokkalingam.