Realty stocks have been witnessing mouth-watering gains this year with the Nifty Realty index jumping 45 percent in the year so far against a 25 percent gain in the benchmark index, Nifty50.
In the last two sessions alone, the realty pack has jumped 12.3 percent, at a time when the global markets are trying to digest the Evergrande crisis.
Evergrande – China’s second-largest property developer – has defaulted on debt payment which could potentially topple China’s property market, sending ripples worldwide.
But this ripple effect has not been seen on the Indian market, especially on realty stocks even as some of these companies have significant amounts of debt.
Some analysts see the Evergrande episode as a blessing in disguise for India.
“In the near term, there may be minor outflows from the Indian markets as global investors with significant exposure to Chinese developers seek to rebalance their portfolios due to losses and redemption pressure. However, in the mid to long term, this could result in higher allocation to India by investors,” Vijay Kumar Gaba, Director of Equal India Foundation, observes.
In a sweet spot
The Evergrande episode is unlikely to cast a shadow on the Indian realty sector which is enjoying a bull run due to multiple factors such as low-interest rates, favourable government policies and signs of economic recovery.
“The realty index has been bullish in the recent past as the interest rates have been low and the government policies have been supportive. The technological advancements in the sector have also been one of the reasons that have led to the bullish movements,” said Ashis Biswas, Head of Technical Research at CapitalVia Global Research.
Some financial institutions, such as HDFC, State Bank of India (SBI), Bank of Baroda, Kotak Mahindra Bank, and Punjab National Bank (PNB), have reduced the rates of home loans which is expected to boost home sales during the festive season.
As per a report by the brokerage firm Motilal Oswal Financial Services, more than 6,000 units have been registered in the first 21 days of September, surpassing the September 2018 total of 5,913 units.
“While registrations will begin to drop with the advent of ‘Shraad,’ even if 50-100 units are registered every day, overall registrations will be nearly 7,000 units which will be a record in the last decade,” Motilal Oswal said.
Even though it remains a fact that China’s second-largest real estate company Evergrande’s current turmoil has impacted the Chinese economy in general and the real estate sector in particular, it can hardly impact the Indian realty players.
“Evergrande episode has some indirect impact on global commodity prices. However, it has hardly any bearing on the Indian realty sector. Probably lower commodity prices may bring down construction cost to some extent for Indian realtors,” said Mitul Shah, Head of Research at Reliance Securities.
“We expect real estate prices to remain firm. Moreover, the rising concept of affordable housing and support from financial institutions to buyers through lower interest rate on home loans would improve real estate demand in the country gradually,” Shah explained.
Devarsh Vakil, Deputy Head of Retail Research, HDFC Securities pointed out favourable government policies are helping the sector.
Taking cues from the Maharashtra government’s successful implementation of the reduction in stamp duty, Karnataka has reduced stamp fees to 3 percent from 5 percent. This move will encourage middle-class buyers to nudge them to buy a home, said Vakil.
“Many stock market players were worried about problems in Chinese real estate markets and we feel those worries are likely to blow over and unlikely to affect Indian real estate stocks,” said Vakil.
Vakil emphasised HDFC Securities has been bullish on residential real estate as housing affordability is at the decade-best levels.
“Income growth overtook the average rise in the price of properties in the last few years and that is helping the residential real estate market to revive across the country. Affordable housing has consistently been on the central government’s agenda ever since the policy on ‘Housing for All by 2022’,” he said.
Gaurav Garg, Head of Research at CapitalVia Global Research is also of the view that the realty sector might not see any harmful implications and if the Chinese markets take a hit, it can positively impact the Indian market in the long run as the investors globally would look for safer markets to park their investments.
Besides, the lower interest rate on home loans has definitely made a positive impact on the realty sector as more investors get encouraged to invest in the sector, he said.
Indian real estate market didn’t perform for the last five years but it is showing a strong recovery in 2021 where the sector is bottoming out in terms of both volumes and prices.
“We have a very bullish view on the Indian real estate sector for the next 3-4 years and the market is also taking cognizance of the turnaround in the Indian realty sector where the Nifty realty index gained more than 12 percent in the last two days despite negative news are coming from Chinese real estate market,” Santosh Meena, Head of Research, Swastika Investmart, said.
Technically, the Nifty Realty index is coming out of 10-year consolidation that may lead to a big bull run in the next 2-3 years, Meena said.
“Sobha is our top pick in the realty space due to its diversified portfolio, strong growth, and healthy balance sheet however Oberoi realty, Kolte Patil, Brigade enterprises, Prestige, and Suntek realty are other preferred picks,” said Meena.
“Investors should also focus on indirect beneficiaries of the boom in real estate sectors like Asian paints, Pidilite, Polycab, Kajaria Ceramics, Cera Sanitary, HSIL, HIL, Ultratech Cement, Canfin homes, etc.
If we see any correction in the overall market due to any global trigger then that will be a great buying opportunity to ride a bull run in the real estate sector,” Meena added.
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