Investors in real estate stocks have been the worst-hit in the ongoing crisis in the share markets. Realty stocks, which were considered a potential goldmine not so long ago, have witnessed the sharpest fall in prices among all sectors.
While the 30-share sensitive index, Sensex, has fallen only by 8.12 per cent from its year-ago level to close on Monday at 13,461.6 points (down 2.47 per cent from its previous close), the realty index has recorded the biggest drop among sectoral indices at 34.47 percent. At Monday's closing mark of 4,543.47 points, the index is now less than one-third its all-time high recorded in January (13848 points). The Sensex had hit an all-time high of 21,206.77 points on January 10, 2008.
While jitters from the wider economy like a high inflation rate and a resultant stiff interest rate regime have pulled down the demand for real estate in general, a high-beta relation realty stocks share with the benchmark indices seems to play the spoilsport in recent times. This means that every one per cent move on the index sees a 1.5 per cent movement in the stock in the same direction of the index. In other words, if say the Nifty corrects by 10 per cent, the price of the respective stock will fall by 15 per cent.
“While inflationary worries and higher interest rates have worked against realty stocks, what has affected them is that they have a high positive beta against the benchmark indices. For example, Unitech has a beta of 1.50 against the Nifty,” Alex Mathews, head of research of Geojit Financial Services, said.
Thus, it is always better to buy high-beta stocks in a bullish market and go for low-beta shares in a bearish one. However, even if one expects a significant bounce back in the benchmark indices in the near term, it may be advisable to stay away from realty counters for the time being, as many of the stocks in that basket are trading below their 52-week average price, which is technically a negative sign.