2008 will be consolidation year for realty stocks

CNBC-TV18s Executive Editor, Udayan Mukherjee - I don’t know how much more the DLF will fall because it’s already approaching its IPO price of Rs 525. So there is quite a bit of despair but this was waiting to happen the big collapse in valuations for real estate. People have been waiting for it since the last one year and now it’s finally happened.

Is there more? The ferocity with which Unitech keeps falling every day tends to tell you that the stock is not bottoming out yet and most of these frontline real estate stocks are now trading at discounts, significant ones to their NAV. But the markets are worried that the whole NAV picture will change completely because when the real estate rally was happening, every analyst beat each other to their NAV estimates. Some said, Rs 500, some said Rs 700, some said Rs 900, because that was the game but now with an understanding and realization that real estate prices are only heading one way regardless of what the companies are saying, all those NAV calculations have gone out of the window. So it’s a challenging time.

Will they overshoot on the way down? Looking at the example of Unitech, it almost seems certain that they will overshoot on the way down and the bad thing about real estate is that people have lost money in this sector now. And when almost everybody looses money on a sector, it becomes very difficult for people to come back and chase it in a hurry. So I suspect that you will see a long consolidation after the fall what they call a U-shaped bottom formation in real estate.
 
There could be trading bounces from time to time but 2008 will be a year where real estate finds its real valuations or realistic valuations, consolidates there and then from those kind of bases, they will move up depending on how the realty prices move.