Real Estate Stocks to Buy: Shares of realty companies have been among the top performers in the recent bull cycle but with interest rates firming up of late. Domestic brokerage and research firm ICICI Securities, said that the Indian residential market staged a stellar recovery in FY22 with industry sales volumes recovering back to FY20 levels and unsold inventory reducing from 46 to 36 months over FY20-22.
The brokerage further said, however, the recent rise in interest rates globally and in India along with rise in construction costs has led to concerns over sustainability of residential demand along with a possible hit on developers’ operating margins. While these concerns are justified, we are of the view that developers in our listed coverage universe have already anticipated these concerns based on past cycles and are now pursuing a path of calibrated growth while keeping balance sheets healthy. Hence, we believe that listed developers may be “shaken, not stirred.”
“Our bullishness is based on listed developers net debt levels have declined by 45 per cent over FY20-22, annual price hikes of 5-6 per cent are enough to mitigate cost pressures, affordability of homes remains healthy as wage inflation may keep pace with rise in EMIs and market share gains continuing for listed players,” it added.
The brokerage house has given ‘Buy’ ratings on real estate stocks DLF, Macrotech Developers, Oberoi Realty, Brigade Enterprises, Sunteck Realty, Sobha Ltd, Mahindra Lifespace Developers. Meanwhile, it has Add rating on Prestige Estates Projects and Sell stance on Godrej Properties shares.
“While the cost of debt will now head northwards over FY23-24E, developers had already seen this coming and have focused on reducing absolute debt levels and have been investing in new land parcels in a judicious asset-light manner to grow sales volumes over the next 3-4 years,” ICICI Securities’ note stated.
In spite of overall industry volumes in FY22 having recovered to FY20 levels, the brokerage estimates that the residential market share of its listed coverage universe has risen from 16 per cent in FY20 to 25 per cent in FY22 at a pan-India level, and estimates it to grow to 30 per cent in FY24E.
Sector Performance
BSE Realty index is down nearly 31 per cent from its 52-week high of 4,464.31 of November 9, 2021 as against the Sensex’s decline of 12 per cent in this period. The Sensex is down 14.6 per cent from its 52-week high of 62,245.53 hit on October 19, 2021.
In Thursday’s session, Real Estate stocks were trading in the negative zone, with the S&P BSE Realty Index index falling 51.72 points or 1.67 per cent at 3052.72 at 13:47 IST.
Among the components of the S&P BSE Realty Index index, Phoenix Mills Ltd (down 4.54 per cent), Indiabulls Real Estate Ltd (down 3.69 per cent),Godrej Properties Ltd (down 2.76 per cent), Brigade Enterprises Ltd (down 1.44 per cent), Prestige Estates Projects Ltd (down 1.41 per cent), were the top losers. Among the other losers were DLF Ltd (down 1.27 per cent), and Oberoi Realty Ltd (down 0.42 per cent).
On the other hand, Sobha Ltd (up 4.54 per cent), Sunteck Realty Ltd (up 0.84 per cent), and Macrotech Developers Ltd (up 0.46 per cent) moved up.
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