The uncertainty in the capital market has hit realty stocks the hardest.
The BSE realty index is the worst performer this year, having shed 51% of its 52-week peak reached in January.
With increasing evidence of a slowdown in the realty sector, rising input costs and little chances of interest rate softening, experts feel realty stocks may see further dip in valuations.
The BSE benchmark index Sensex has shed 24% since January while power stocks, which had a fantastic rally before the January crash, have lost 42% of their 52-week peak. Other major losers include bank (41%), consumer durables (41%), capital goods (39%), PSU (39%) and oil and gas index (28%).
Centrum Capital research head Harendra Kumar says, “Realty and power stocks had run quite high in 2007, and that’s why when they started coming down, the fall was more pronounced”.
Further he said that investors were factoring in higher profits, but now with the sector in the throes of a slowdown, they are scaling down their expectations leading to fall in prices.
The country’s largest property firm DLF’s scrip lost 54% while Unitech shed 64% from its peak. The scrips of Delhi-based Parsvnath and Omaxe have lost 68% each since January.
Real estate sector is seeing a major slowdown in the sales volume in most markets of the country. The speculators have exited the market and Mumbai and NCR, the biggest real estate markets in the country, are seeing subdued sales.
In Gurgaon and Noida, which had seen prices almost treble in four years, sales are down 70%, leading to a price correction of 10-20%. Centrum’s Harendra Kumar says if the negative news-flow continues for the realty sector, the scrips may see a further dip.
Angel Broking research head Hitesh Agrawal said, “The scenario has changed since end-2007 when the consumers expected interest rates to soften. We are faced with such a high inflation rate that interest rates are unlikely to come down for 6-9 months”.
Mr. Agrawal said, “Rising steel and cement prices have increased the input cost for developers while credit has been tightening with banks becoming selective in lending”.
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If you thought that only the real estate values are witnessing a dip, think twice. Even the advertising industry is also feeling the realty heat.
According to industry sources, it is estimated that all major developers such as DLF, Omaxe, Ansals and Parsvnath have decided to cut down on their advertising budgets by around 5 percent. The advertising industry in India is estimated at Rs 10,000 crore.
For all the talk about a slowdown in the economy, real estate prices in most parts of the country have not corrected as much as most prospective buyers would have liked them to. But, shares of most real estate companies are not finding any takers even after falling nearly 50% from their record highs in January this year. This would suggest that the ongoing sell-off in real estate stocks is a good opportunity for bargain hunting. Yet, most brokerage houses are advising their clients against doing so, as they foresee testing times for the sector in the near term. In fact, many of them are recommending that existing investors cut their losses right away as they could be in for a long wait for share prices to come anywhere near their lofty highs.T he sharp rise in real estate prices, coupled with high borrowing costs has let to softening of demand. The slump in the stock market, too, has contributed to the trend as many investors were earlier routing their gains in share trading into real estate.Industry experts feel that companies that have managed to buy land in Mumbai at reasonable rates could be good bets even in these turbulent times. With outlook on the market as a whole being bearish, brokers expect realty stocks to slip further.Most property developers in India were riding the wave of an unprecedented demand due to a combination of rising affluence, tax benefits for home owners and low interest rates. But, this fuelled speculative buying in the sector, causing property prices to soar to exorbitant levels.For more view- realtydigest.blogspot.com