[T.S.R:16698] Real Estate: The Sector Could Lose 50% Of It's Market Cap In The Next Six Months

Real Estate: The Mother Of All The Bubbles

While interest rates rise, excessive leverage acts a millstone around the neck of developers. What will sink them further is zero ability to deliver any project on time and inability to liquidate inventories...top names to sink would be DLF, Unitech, IBREL, Orbit, Ackruti, Prestige, Oberoi, Brigade, Sobha, DB Realty and the motley bunch of sub Rs 500 crore market cap realtors.

 

The eight per cent drop in the Sensex from early November may not seem like a big fall, but small-cap stocks have suffered much more damage in this correction. Stocks from the realty basket have taken worst hits in this period with select stocks (Indiabulls Realestate, DB Realty) down almost to half their price.

2011 hasn't started on a good note for stock market investors.

 

The Sensex (down five per cent) lags the EM and other global peers in year-to-date returns.

 

Small-caps worst hit

 

The BSE Smallcap index is down 17 per cent from the high it hit in November last year. The small-cap stocks though they didn't stage a spectacular performance compared to the broader market (BSE 500) last year, they have fallen sharply in this correction. Some known names here are Koutons Retail (down 54 per cent), Gitanjali Gems (down 46 per cent) and Hanung Toys (down 44 per cent). The index is at a valuation of 14.7 times now, down from 19 times it enjoyed last year.

 

Interest rate worries

 

While escalating inflation and the slew of scams have aggravated negative sentiment in the market, the profile of sectors that received setbacks show that the fundamental worry was around interest rates rising too sharply for comfort.

 

Fears of rate hikes on top of tight liquidity and withdrawal of teaser rates by banks saw investors beat down stocks of realty developers. Stocks of DB Realty, Ackruti City, Indiabulls Real Estate, Orbit Corp, HDIL and Ansal Properties and Infra were worst hit losing between 35 per cent and 53 per cent from the highs of November to early this week.

 

The BSE Realty index is down by 52 per cent in last two months. The index's PEM (price earning multiple) has come down to 23 times now from 36 times in November last year.

 

With banks kicking off deposit rate increases, an anticipated margin squeeze dragged banking stocks down. The BSE Bankex is down 18 per cent in the period. The top losers in this space were Bank of India, Kotak Mahindra Bank and Punjab National Bank.
 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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