Realty stocks bear the brunt as wary investors play it safe
MUMBAI: Shares of top real estate developers fell steeper than the benchmark indices in a month as investors fret over the impact of hardening interest rates and unrelenting property prices on demand.
Analysts dont rule out the possibility of another bout of correction in these stocks, as deteriorating finances, weighed down by higher funding costs, could force companies to sell prices at lower margins.
The outlook of real estate stocks would continue to be grim in the short term, because these companies face high borrowing costs, said DD Sharma, VP-research , Anand Rathi Financial Services.
Shares of property developers , including DLF, HDIL , Unitech and Orbit Corporation , dropped 10-30 % while the benchmark Sensex fell about 4% in a month.
Most banks have refrained from lending to them, after the Central Bureau of Investigation (CBI) arrested a few top officials of public sector banks, accusing them of taking bribes for loan and improper lending. This has forced most companies to raise funds at higher-thanmarket rates.
Analysts said the high debt ratios of most realty companies have also resulted in banks abstaining from lending to them, especially when demand for property is on the wane.
Those having higher exposure to places such as Mumbai and Delhi NCR will be more affected as prices have been overheated , So, a correction is long overdue, said Ambareesh Baliga , Sr-VP , Karvy Stock Broking. Also, the sector witnessed huge private equity investments which are expected to exit in the second half during which the real problem will be faced, he said.
The real estate sectors situation is reminiscent of 2007-08 , said brokerage Indi! a Infoli ne, in a recent report. The situation could worsen if, like in 2007-08 , developers refuse to cut prices to boost volumes and cash flows, the broking firm said while downgrading its rating on DLF and Unitech.
Analysts recommend investors to start buying shares of companies with lower debt. While it is true that most companies will face financial constraints , certain stocks, like stocks DB Realty, Oberoi Realty, are quoting at attractive levels, said DD Sharma, VP-research , Anand Rathi Financial Services. Also, many companies have been quoting at huge discounts of less than 50% of estimated 12-month net asset value. So, investors can accumulate them on dips from a long-term perspective , he said.
Analysts dont rule out the possibility of another bout of correction in these stocks, as deteriorating finances, weighed down by higher funding costs, could force companies to sell prices at lower margins.
The outlook of real estate stocks would continue to be grim in the short term, because these companies face high borrowing costs, said DD Sharma, VP-research , Anand Rathi Financial Services.
Shares of property developers , including DLF, HDIL , Unitech and Orbit Corporation , dropped 10-30 % while the benchmark Sensex fell about 4% in a month.
Most banks have refrained from lending to them, after the Central Bureau of Investigation (CBI) arrested a few top officials of public sector banks, accusing them of taking bribes for loan and improper lending. This has forced most companies to raise funds at higher-thanmarket rates.
Analysts said the high debt ratios of most realty companies have also resulted in banks abstaining from lending to them, especially when demand for property is on the wane.
Those having higher exposure to places such as Mumbai and Delhi NCR will be more affected as prices have been overheated , So, a correction is long overdue, said Ambareesh Baliga , Sr-VP , Karvy Stock Broking. Also, the sector witnessed huge private equity investments which are expected to exit in the second half during which the real problem will be faced, he said.
The real estate sectors situation is reminiscent of 2007-08 , said brokerage Indi! a Infoli ne, in a recent report. The situation could worsen if, like in 2007-08 , developers refuse to cut prices to boost volumes and cash flows, the broking firm said while downgrading its rating on DLF and Unitech.
Analysts recommend investors to start buying shares of companies with lower debt. While it is true that most companies will face financial constraints , certain stocks, like stocks DB Realty, Oberoi Realty, are quoting at attractive levels, said DD Sharma, VP-research , Anand Rathi Financial Services. Also, many companies have been quoting at huge discounts of less than 50% of estimated 12-month net asset value. So, investors can accumulate them on dips from a long-term perspective , he said.
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