BSE Realty index hits 8-month high; Mahindra Lifespace, DLF soar up to 7%

Shares of real estate companies were on a roll, with the S&P BSE Realty index hitting an eight-month high at 3,760, up 4 per cent on the BSE in Monday’s intra-day trade after realty players reported strong earnings for the January-March quarter (Q4FY23) and on expectations of a pause on rate hikes on the back of lower-than-expected CPI inflation for April.

The realty index quoted at its highest level since September 2022. It had hit a 52-week high of 3,860.28 on September 13, 2022. Since April, in past one-and-half months, the S&P BSE Realty index has rallied 21 per cent, as compared to 5.8 per cent rise in the S&P BSE Sensex.
 

Meanwhile, CPI inflation for April came in sharply lower and as per market expectation at 4.7 per cent vs. 5.7 per cent in March 2023. Inflation is not a concern for the Reserve Bank of India (RBI) at least for next few months as favourable base and stable prices should keep CPI print under comfort zone.

“Inflation dynamics should augur well for RBI’s reaction function, which will further be helped by policy repricing in the West. We think the bar for RBI to raise rates ahead is high, especially as the ex-ante real rates are at >1.5 per cent - keeping our one-year forward inflation forecast as anchor, giving them comfort and flexibility on their supposed stance and actions ahead.

The next move will only be a cut, albeit conditional on global policy moves,” analysts at Emkay Global Financial Services said.
At 12:08 PM; Realty index, the top gainer among sectoral indices, was up 3.8 per cent, as against 0.63 per cent gain in the benchmark index. Mahindra Lifespace Developers, DLF, Godrej Properties, Prestige Estate Projects and Sobha soared between 5 per cent and 7 per cent. Oberoi Realty and Macrotech Developers (Lodha) were up 4 per cent and 3 per cent, respectively.

Among individual stocks, shares of DLF hit a multi-year high of Rs 461.65, as it rallied 6 per cent on the BSE in Monday’s intra-day trade after the firm reported a healthy 40 per cent year-on-year (YoY) growth in consolidated net profit at Rs 581 crore for the January-March quarter (Q4FY23), driven by strong margins and revenue mix. Revenue, however, was down 6 per cent YoY at Rs 1,576 crore.

The stock was trading at its highest level since October 2009. Thus far in the calendar year 2023, it has outperformed the market by surging 22 per cent, as against 2 per cent rise in the S&P BSE Sensex.

DLF reported bookings of Rs 15,058 crore in FY23, doubling YoY, driven by major launches in Gurugram and Chandigarh Tri-city, which accounted for 80 per cent of the overall sales.

The strong business performance led to a healthy surplus cash generation enabling significant strengthening the company’s balance sheet. Net debt now stands reduced to Rs 721 crore, one of the lowest levels.

Motilal Oswal Financial Services expect the inventory churn to be at least 50-55 per cent in FY24, higher than the company's assumption of 40-45 per cent, which would ensure pre-sales runrate will sustain at Rs 15,000 crore. In a bull case scenario, if the company manages to maintain a similar inventory churn as FY23, it could achieve a 20 per cent growth, the brokerage firm said.

The brokerage firm believes the company can match its FY23 sales run-rate, driven by a strong launch pipeline of 11msf across the luxury and value segment. It increased FY24/25 pre-sales estimates by 70 per cent/32 per cent.