Real estate stocks have been gaining ground ever since the RBI announced measures to ease short-term liquidity. BSE Realty index outperformed the past month, gaining over 3.05% as compared to 1.2% gains on the BSE Sensex. Real estate stocks such as Unitech, DLF, Oberoi Realty gained anywhere between 1-8% the past month.
Real estate stocks have been underperforming due to RBI’s liquidity tightening measures to stem the rupee’s fall. BSE’s Realty index fell 29.6% the past year. By contrast, BSE Sensex gained 7.6% in the same time.
RBI’s caliberated measures to cut short-term interest rates and boost liquidity has bought cheer to real estate stocks as real estate companies also rely on short-term borrowings from the market. RBI cut the MSF rate to 9% lately, and also conducted open market purchase operations of Rs 9,974 crore on Monday.
The coming festive season is also adding to the rise in real estate stocks. Market watchers say that real estate sales improve in the second half of the year as first time buyers begin to look for new homes.
Real estate companies have also been selling assets to lighten up their balance sheets. DLF said its subsidiaries divested 60% stake in Asia Starbuild, at an enterprise value of Rs 79.8 crore. The deal is a part of DLF’s strategy to divest non-core assets.
Experts, however, say that real investors should be selective in real estate stocks now, and investors must avoid those companies that have a heavy debt position. Says a broker: “the short-term liquidity injections are good, but longer term only companies with a lighter balance sheet are likely to do well.”
