Heavy selling by foreign institutional investors (FIIs) has added to the woes of real estate companies, already in the doldrums.
The two biggest losers of FII confidence in the last six months are Mumbai-based realty players Indiabulls Real Estate (Ibrel) and Orbit Corporation. Indiabulls Real Estate, the Mumbai-based realtor with investment from steel baron Lakshmi Niwas Mittal, has seen a steady rise in its FII selling in the last three quarters. At the end of March, FIIs held a 53.7 per cent stake in the company, which has fallen to 45.33 per cent in the September quarter. The heavy selling by institutional investors has battered the stock, too.
The stock hit its new low since listing at Rs 60, down five per cent at the end of the day on the Bombay Stock Exchange. FIIs have also shown the door to other realtors like DB Realty and Housing Development and Infrastructure Ltd, Sunteck Realty and Bangalore-based Nitesh Estates.
The real estate sector has been grappling with interest rate rises, slowdown in sales and an increase in debt burden of developers. Though sales have dried up, developers are not ready to cut prices and they are borrowing at a higher cost.
An analyst with a foreign brokerage who did not wish to be identified says, “Indiabulls Real Estate has failed to generate any cash flow earnings and most of its net asset value lies with its power venture, where it will take time before any concrete results can be seen. The company has bought land parcels from National Textile Corporation at very high prices, where they are not able to capitalise. Even in its existing projects, cash flow is a concern, and sales slowdown in Mumbai is a negative sentiment.”
Ibrel isn’t the only case. Following the footsteps are fund managers who had bought stake in Orbit Corporation promoted by Pujit Agarwal. Agarwal, managing director of the luxury realty company, said, “The realty market has been hit badly. FIIs have sold our shares but as I understand, in the last two weeks, FIIs have started re-investing. Our stocks have fallen considerably but sales are slowly picking up.”
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The company’s FII holding has fallen from 11.97 per cent in the March quarter to 6.7 per cent in the June quarter and stands at 2.26 per cent at the end of the September quarter. Orbit’s stock hit its 52-week low at Rs 26.05 per share at intraday, finally closing at Rs 26.40 down 1.1 per cent.
R Sridhar, group director, DB Realty, said, “I think the problem with the Indian market is that the FIIs are under a lot of pressure and they are trying to cut exposure. But, shares at these prices are quite attractive and real estate is a long-term story.”
DB Realty’s promoters are embroiled in the telecom 2G-scam. It has seen a drop in FII holding from 5.46 per cent in March to 4.5 per cent in September. Kamal Khetan, managing director of Sunteck Realty, indicated that institutional investors own close to 14 per cent stake. Its FII holding has fallen from six per cent to 4.4 per cent in the last six months.
The FII holding in Nitesh Estates had fallen to 21 per cent in the September quarter, as compared to 23 per cent by March-end.
An analyst from a domestic brokerage said, “Some funds had started selling Ibrel shares in the open market, which has pulled the stock price to its new lows and we expect this to continue. Also, the stock price of all the realty stocks have fallen to the same levels as it had when the market was trading at 8,000 points and at present, we are trading at 16,065 points. If markets falter any further, funds will continue their heavy selling.”