I regularly discuss investing with a lot of professional fund manager and very often, the conversation turns to their opinions about various sectors. Fund managers may have a range of opinions about different companies, but what is striking is the uniformity of their abhorrence of real estate companies. As per their latest investment portfolios, Indian equity funds have an average of 1.9 per cent of their assets deployed in real estate firms. The median is 1.4 per cent.
However, what I find interesting (even amusing) is that many fund managers wear this like a badge of honour. While talking to analysts or investors, fund managers tend to specially mention the fact that they avoid realty stocks with the expectation that this adds to their credentials as careful and competent professionals. They could have a negative outlook on many other sectors but this is the one sector on which having a permanent negative outlook is now taken as a marker for competence, a sort of a pre-requisite for claiming to be a good fund manager. And it’s not just about fund managers — this attitude pervades everyone who is a long-term investor in stocks.
At one level, this is almost funny; at another, it’s tragic. Given the scale of investments needed for housing in India, it’s sad that the public money route has become so difficult for real estate companies.
However, from the investor’s point of view, this attitude is completely justifiable. Real estate firms have treated investors in such an abusive fashion that their stock prices have found stability at abysmal levels. No investor has any trust in any of the numbers put out by realty stocks, whether it’s the value of their assets or their revenue and profit numbers.
Investors and fund managers have completely switched of from these stocks and don’t even look at their numbers and try and evaluate what the real picture of realty stocks is, and the management of these outfits has no one to blame but themselves.