Realty adds shine, index surges 6%

Mumbai: Property developers extended their winning run on the bourses after reporting strong demand in the September quarter driven by low interest rates and cheaper prices. The BSE's Realty Index jumped 6% - the biggest sector gainer on Thursday, while the benchmark Sensex rose 0.8%.

Sobha led the gainers on Thursday, soaring 16.7% to ₹885 after the Bengaluru-based company said in an update to stock exchanges on Wednesday that it posted the best ever sales volume in the September quarter.

Macrotech, earlier known as Lodha Developers, also told exchanges on Wednesday that it posted the best-ever second quarter sales despite July-September being a weak period for property sales because of monsoon and the Shraadh period - considered inauspicious for fresh purchases. Macrotech shares jumped 6.5% on Thursday.

Shares of other property developers Oberoi Realty, Godrej Properties, Prestige Estates, Brigade Enterprises, Sunteck Realty, Phoenix, DLF, Indiabulls Real Estate and Mahindra Lifespace Developers gained 2-9%.

"We are positive on the sector as there is lot of pent-up demand and the mortgage rates are at historic lows, lot of inventory available to be sold after 8-9 years of stagnant prices," said Gaurav Dua, senior VP and head of capital market strategy at Sharekhan by BNP Paribas.

"Affordability is better because of increasing income levels and low interest rates. The real estate sector is probably set for a multi-year upcycle." Dua is is most bullish on Oberoi Realty and Mahindra Lifespace.

So far this year, the Realty index has gained 71.4% while the Sensex has gained 25% year to date.

In a recent interview with ET, Christopher Wood, global head of equity strategy at Jefferies, said India's residential property market is at the cusp of a five-to-seven-year bull cycle.

"The real opportunity is residential property because we are very early in a new upcycle," he said. “The commercial property sector has been much more resilient in the last seven years than residential property."

In the past few months, real estate stocks have emerged out of a 13-year bear cycle as the outlook for residential property has improved on account of low interest rates and a cheaper prices.

“... enhanced affordability, benign home prices for several years, decadal low mortgage rates, volatility in other asset classes and sense of home ownership likely to drive demand for homes... we are at the cusp of an impending upcycle in real estate that is likely to last over next few years," said Antique, which is bullish on Macrotech Developers and Brigade Enterprises for target price of 1,262 and 515, respectively.

Some analysts think stock prices of some companies have rallied too soon. ICICI Securities on Thursday upgraded its target price on Sobha to 774 from 540 but downgraded its rating to ‘hold’ from ‘add’ after the 79% jump in the stock price in the past three months.