Realty Stocks Plummet Amidst Market Uncertainty and Sector Slowdown
The capital market's unpredictable nature has significantly impacted realty stocks, making them the worst performers this year. The BSE realty index has plummeted by 51% from its 52-week peak achieved in January.
With mounting indications of a slowdown in the real estate sector, escalating input costs, and minimal prospects of interest rate reductions, experts predict further devaluation of realty stocks.
Market Performance Comparison
While the BSE benchmark index, Sensex, has declined by 24% since January, the realty index's decline is more than double this figure. Other sectors, such as power, banks, consumer durables, capital goods, PSU, and oil and gas, have also experienced substantial losses, ranging from 28% to 42%.
"Realty and power stocks had run quite high in 2007, and that’s why when they started coming down, the fall was more pronounced", explains Harendra Kumar, Centrum Capital research head. He further elaborates that investors, initially anticipating higher profits, are now adjusting their expectations downwards due to the sector's slowdown, contributing to the price decline.
Impact on Major Players
Leading property firms have witnessed substantial losses in their share prices. DLF, the country's largest property firm, experienced a 54% drop, while Unitech's shares plummeted by 64% from their peak. Delhi-based Parsvnath and Omaxe have both lost 68% since January. The real estate sector is facing a considerable decline in sales volume across most markets in India. Speculators have withdrawn from the market, resulting in subdued sales in major real estate hubs like Mumbai and the National Capital Region (NCR).
Regional Impact and Future Outlook
In Gurgaon and Noida, where prices nearly tripled in four years, sales have dropped by a staggering 70%, leading to a price correction of 10-20%. Kumar warns that if the negative news flow persists, realty stocks could face further devaluation.
Hitesh Agrawal, Angel Broking research head, points out the shift in market dynamics since the end of 2007. “The scenario has changed since end-2007 when the consumers expected interest rates to soften. We are faced with such a high inflation rate that interest rates are unlikely to come down for 6-9 months”.
Mr. Agrawal adds, “Rising steel and cement prices have increased the input cost for developers while credit has been tightening with banks becoming selective in lending”. This combination of factors paints a challenging picture for the real estate sector in the near future.