They may be bogged down by debt and demand slowdown. But real estate stocks have suddenly caught the fancy of investors with top companies in the sector emerging as major gainers when sensex breached the 11000-mark on Wednesday. The BSE Realty Index was the topper among sectoral indices closing the day 8.79% higher. Sensex ended 2.9% higher with the BSE-100 advancing 3.3%. Ansal Infrastructure emerged as the biggest gainer among the pack with the stock jumping 17.1% during the day. Unitech, which is rescheduling its debt, rose 15% and DLF, the country’s largest real estate firm, saw its scrip rise by 10%. The Realty Index has performed impressively in the current rally. Realty gained the maximum registering 13.7% increase for the week ended April 9 compared with the 4.4% advance made by sensex. DLF moved up 9.2% while Indiabulls Real Estate and Unitech ended the week 25.4% and 12.1% higher respectively during the period.
High debt levels, however, are weighing down on the performance of realty companies. While DLF is estimated to have Rs 15,525 crore in debt, Unitech has Rs 8,900 crore with interest costs for the next financial estimated at around Rs 2,000 crore and Rs 1,150 crore respectively for the two realty majors. Analysts point out that the stocks have been rising on the hopes of a further rate cut. With debt restructuring now complete, investors’ focus would now shift to the ability of companies to service interest costs, according to Amit Adesara of Emkay Global Financial Services. “Attractively priced projects have found tremendous response. Cash flows generated from these projects will be utilised for interest servicing.”
However, some analysts don’t seem impressed. “There is no improvement on the macro economic front for the realty companies to have rallied. We expect the sector to reel under pressure until interest rates go back to lows of 7-8% and prices correct to affordable levels,” according to analysts at Angel Broking. The brokerage firm, in its weekly note, has maintained that it remains ‘neutral’ on realty and advised clients to stay away from stocks in the sector.