Improving sentiment, fundamentals fire up realty stocks; should you buy

The realty sector is gaining great traction on Dalal Street. Since the Budget, the counter has seen an unprecedented rally, which has fired up stocks by 63%.

Chiranjivi Chakraborty
  • Published On May 10, 2016 at 12:30 PM IST
NEW DELHI: The once neglected real estate sector is gaining great traction with investors on Dalal Street.

Since the Union Budget, the real estate counter has seen an unprecedented rally, which has fired up the stocks by as much as 63 per cent. The BSE Realty index, a gauge of real estate companies on the BSE, has jumped 22 per cent over the past three months, highlighting the shift in sentiment.

“If you look at the fundamental factors for real estate, they have turned considerably better,” said Pankaj Sharma, Executive Director, Equirus Securities.

He pointed to two data points to support his argument.

“First, there has been lift in buyer sentiment in the past six months, leading to a lot of end-user buying across tier-I cities and that is a very good sign. Secondly, if you look at what is happening on the final affordability front, with the interest rates coming down and a 6-8 per cent kind of salary hike, real estate is becoming more and more affordable,” he said.

There has been an appreciation in property prices in many metro cities across the country. Average residential prices in Mumbai have appreciated only 3.3 per cent in 2015 against 7 per cent in 2014, an ET report said.

JLL, a global real estate services firm, has projected property prices to rise about 6 per cent in 2016, still below the appreciation seen in 2014.

“When prices stabilise, more end-users enter the market. Overall, if you look at the commercial side, the yields are very attractive. If somebody is looking at this sector today, I do not think the sentiment is as bad as it was six months back,” Pankaj Sharma said.

Dilip Bhat, Joint MD at Prabhudas Liladher, is still not a believer in the comeback story in the real estate sector. He, for one, expects more readjustments in the sector and does not think these stocks can make big money for investors in general.

“This is one sector that will probably go through a lot of readjustments because the new norm is that you have to keep on doing the construction, and real estate prices will be forced downwards and this scenario means real estate companies will not make great money,” he said.

The government’s focus on affordability and the Sebi move to allow foreign investors to invest in Real Estate Investment Trusts (REITs) have also triggered massive buying interest in these stocks.

“I think real estate is supposed to be high beta and deserves less to be on a portfolio, given the fact that you have the real estate bill becoming a reality and you have the floor space index in Mumbai moving upward from 1.5 to 2.5, which is aiding these stocks,” said Gaurang Shah, VP, Geojit BNP Paribas.

Shah favours names like Godrej Properties, Mahindra Life Space and Oberoi Reality.

Sandip Sabharwal of asksandipsabharwal.com favours names like DLF and Oberoi realty.

“In real estate, sectoral leader DLF is still in the value zone. It has made attempts to move up but then it has come back again. The debt reduction, the REITS story, the listing of its arm and all those stories are still intact in DLF and this stock can do well,” he said.

On Oberoi Realty, he believes its exclusivity in the Mumbai market makes it a good bet.

"The only Mumbai-based stock one can play is Oberoi Realty. We have seen a decent uptick in the recent past, but on any correction that stock looks good because with the kind of new launches they are coming up with next year, FY18 will be a big year for them,” he said.
  • Published On May 10, 2016 at 12:30 PM IST
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