Stocks down but outlook bullish
Despite receding liquidity worries and home loan rate cuts by several banks, real estate stocks declined during the week as the broader equity market underwent a sharp correction.
While the benchmark Sensex of the Bombay Stock Exchange shed 4.66 per cent during the week, the BSE Realty Index ended the week at 9053.64 points, down by 8.35 per cent during the same period. However, from a month-ago level, the index has gained 6.96 per cent.
Market experts remain bullish on these counters and expect real estate, construction and property development companies to post robust results going forward, as easing home loan interest rates and strong demand are expected to drive the profits of companies in the sector.
With major lenders in the country like HDFC, ICICI Bank and SBI cutting their home loan rates by 0.25 per cent to 1 per cent, several lenders followed suit during the month.
IDBI Bank too has reduced its flexible rates on housing loan by 0.50 per cent to 10.50 per cent.
While SBI had cut interest rates on home, auto and personal loans by 0.5 to 1 per cent, ICICI Bank reduced its rates by 0.25-0.50 per cent on home, car and personal loans. In September, HDFC too cut its rates on floating home loans by 0.5 per cent. Bank of Baroda and Axis Bank too cut their rates. Though unconfirmed reports suggest that property prices have fallen by 10-20 per cent in many places, experts remain bullish on the real estate sector. “There may be price fluctuations here and there. But all in all, prices are expected to continue the upward trend and we remain bullish on the sector,” says Gagan Banga, CEO Indiabulls Credit Services.
According to a recent ICICI Securities report, increasing liquidity and fund inflows, visible execution and improving sentiments have resulted in compelling valuations for companies in the real estate sector.
“The sales trend is picking up sequentially though still below the peak activity in 2006. Project execution has picked up pace as more developers are emphasising on timely completion. Further, many large real estate companies that got listed recently have raised around Rs 128 billion from the capital markets,” the report said.