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BSE Realty Index It is down 31% from its 52-week high of 4,464.31 on November 9, 2021, while the Sensex has lost 12% in the period. The Sensex is down 14.6% from its 52-week high of 62,245.53 hit on October 19, 2021. Analysts said investors may be tempted to take beaten stocks in the sector, but with liquidity crunch, fewer stocks could outperform going forward.
Gautam Duggad, Head, Institutional Equities, said, “Interest rates have risen, which is not a good sign for the sector. “One should not opt out of this area completely but be selective.” The brokerage prefers Lodha and Oberoi and DLF.
The BSE Realty index has fallen over 16% since April 1 amid weak market conditions and rising domestic interest rates. The Sensex has fallen by 9% during this period. The Reserve Bank of India has already hiked interest rates twice since May – by 40 basis points and more recently by 50 basis points in its last policy review.
Economists and money managers predict that the RBI may increase the repo rates by a total of 200 basis points to take the repo rates to 5.5-6% in early 2023.
Analysts said historically high mortgage rates have not affected demand, but they do affect investor sentiment in these stocks. Some developers have guided for a strong business outlook for the current fiscal.
Aniruddha Sarkar, CIO, Quest Investment Advisors, said, “Comprehensive property sales and registrations will remain strong as some of the wealth redistribution among people who have made money in equity over the past two years is moving from equity to real estate.” He is bullish on DLF and Prestige Estates.
“We are confident that they will outperform the market, delivering double digit returns next year. Both these companies have a good mix of residential and commercial assets,” the government said. He added that Prestige is also coming up with some big commercial projects in Mumbai and may become landmark projects in 2-3 years.
Jefferies said data from property advisors, registration data and recent developer comments show that housing demand was good in the April-May period, despite an increase in mortgage rates.
Jefferies, which has a preference for Godrej Properties, DLF and Macrotech Developers, said, “Rising rates have accelerated the recovery in the realty index, however given developer discipline, we believe that the stock may be better than previous such tight cycles. I have a case for trading at higher multiples.”
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