BSE Realty Index Hits Over 10 Year High. What's Driving the Rally?

Shares of realty companies surged today, with the BSE Realty Index hitting a 10-year high.

Construction activities have picked up pace with states easing lockdown curbs amid a steady fall in covid cases.

The realty index hit an intra-day high of 3,040.8 points, its highest since February 2010.

Over the last two months, the index has risen 27% compared to an 8% gain in the benchmark Sensex.

Among stocks, DLF, Godrej Properties, Oberoi Realty, Phoenix Mills, Prestige Estate, Indiabulls Real Estate, Sobha, Sunteck Realty have advanced 10-47% during the period.

A few factors that helped the realty sector to hit 10-year high

The real estate sector, which was already under pressure, was also affected as construction activity came to a complete halt due to the lockdown.

But the sector bounced back once restrictions was lifted, growing at 10.7% in the second half of 2020- 21, compared to a 29.1% decline in the first half of the year.

While the uncertainty around the Covid crisis continues, economic prospects for India are better than these were a year ago.

Also, some companies like Oberoi Realty, Brigade, Godrej Property have reported better-than-expected pre-sales numbers in 2nd half of 2021 on the back of pent-up demand in the sector.

However, according to market experts, the quarter one of current year will not be as good as the last quarter due to the state-wise lockdown, but the long-term story of the real-estate market has been maintained.

After the lockdown, analysts say, property registrations saw a sharp recovery in June.

Record low interest rates, good schemes, discounts, are among the key drivers boosting outlook for the sector even as stamp duty cuts have been rolled back.

Real estate has seen a down cycle of more than five years following the implementation of Real Estate Regulatory Authority (RERA), demonetisation, credit issues, and then pandemic.

As a result, small players took a hit, losing market share. Along with this, customer preference for ready-to-move in properties and brand loyalty favour listed real-estate players.

It is expected that the real estate sector will outperform, and this may be a start of a new upcycle in the real-estate sector after consolidation in the last 10 years.

Global firms take on the sector going ahead

According to a CLSA report, top developers aim to double their sales over the next three to four years, benefiting from strong demand, affordability, and industry consolidation.

Most of them have been targeting strong cash flow generation and looking to reduce debt.

They also aim to ramp up new project acquisitions. Rising vacancies mar the near-term outlook in the office segment but it remains positive for the long term.

As per a global real estate consultancy firm report, June saw a 327% year on year (YoY) surge in registrations. With this, the sector hopes to end the year on a good number while attaining stability.

Also, the increase in women home buyers to 4.7% in June from 1.8% in May showcases the success of stamp duty reduction for women. Additionally, June also witnessed 42% new registrations.

Going forward, the sector expects significant traction from young home buyers and change in buying patterns, keeping in mind market dynamics.

Equitymaster's technical view on realty index

We reached out to Brijesh Bhatia, Research Analyst at Equitymaster, and editor of the premium monthly recommendation service Fast Profits Report, for his technical view on the realty sector.

Here's what he has to say...

• First the Metals, then Cements and now the Realty is breaking out of multi-years bearish trend indicating the frequent sector rotations in this bull markets.
  
  With the lower interest rates on loans and revised ticket size in REIT's investment, the liquidity is likely to flow into this sector.
  
  Realty index has broken out of the decade old range of 140-350 to build the skyscraper on charts, the price rally.
  
  On short-term chart (Daily), the index has broken out of cup and handle pattern which confirms the bullish breakout.
  
  We expect the breakout to play well and expect the fast and furious rally like metals and cements.

 

• Realty index is underperforming against Nifty since 2008 and Nifty trading at all-time high, possess a risk for realty index.
  
  The bullish structure might negate if the index moves back below 300 and trades in the decade range.

How realty stocks are performing today

Among individual stocks, Indiabulls Real Estate surged 16.6% to Rs 140.3, also its 52-week high on the BSE, on the back of a three-fold jump in trading volumes.

Macrotech Developers hit a new high of Rs 814.9, up 6% on the BSE in the intra-day trade today.

Meanwhile, Mahindra Lifespace Developers rallied 11% to Rs 684, followed by Suntech Realty, up 5% at Rs 349.8.

Godrej Properties, Oberoi Realty, and Prestige Estate Projects ended the day up 2.6%, 3% and 2.4%, respectively.

Here's a list of realty stocks and their performance...

		Returns
SCRIP	BSE PRICE(Rs)	1 month	1 year
BRIGADE ENTERPRISES	323	15.7%	131.1%
DLF	310.1	1.9%	111.8%
GODREJ PROPERTIES	1,519	7.8%	73.2%
INDIABULLS REAL EST	138	29.3%	111.7%
JAIPRAKASH ASSO	13.5	53.7%	371.9%
MAHINDRA LIFESPACE	666	14.3%	213.6%
NBCC (INDIA)	54.7	10.7%	100.2%
NCC	96.3	17.5%	194.9%
OBEROI REALTY	693	6.6%	88.8%
PHOENIX MILL	867	5.8%	46.0%
PRESTIGE ESTATES	303.3	4.1%	51.6%
SOBHA	571.7	12.3%	138.2%

Source: Equitymaster

For more detailed updates, check the latest Real Estate / Construction sector results.

You can also compare realty stocks on our website.

Godrej Properties vs Indiabulls Real Estate

Oberoi Realty vs Prestige Estates

Sunteck Realty vs Macrotech Developers

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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