Real estate stocks collapse over 50% from all-time highs

ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Nifty BSE | NSE 29/05/12 Are Mutual Funds betting on Nifty? Other Stocks in this news Hubtown | Ansal Properties & Infrastructure | Anant Raj Industries | BL Kashyap & Sons | C & C Constructions | D.S. Kulkarni Developers | Era Infra Engineering | Gammon India | Gayatri Projects | Hindustan Construction Company | Indiabulls Real Estate | IVRCL | Mahindra Lifespace Developers | Madhucon Projects | Welspun Projects | NCC | PBA Infrastructure | Parsvnath Developers | Patel Engineering Company | Pratibha Industries | Sobha Developers | Simplex Infrastructures | SPML Infra | Unitech |

Construction and real estate stocks got whacked during this fall in markets. High valuation and interest rate hike are the two major reasons behind this fall.

RBI has increased repo rate five times since May 2006 fall and twice in this year and this led the banks to hike interest rates.

RBI intends to suck excess liquidity by hiking CRR by 150 basis points. This will lead the banks to lend  less.  Hence, banks will get pressurized to raise interest rate. And this will further reflect on companies borrowing from banks. The  financials of the companies are also likely to get impacted as high interest rates will eat away their profitability. 

If more rate hikes happen it will reduce demand for housing as people will not be be able to afford high interest rates. Experts believe that less demand for housing will stabilise real estate prices.

Higher valuations is another factor for the sector's fall. Real estate were trading at high P/E multiples and now these stocks are available at lower prices. Majority of the real estate and construction stocks have slipped nearly 50% from their all-time high and the rest are trading 30-40% lower from its highs.

Recently listed realty majors like C and C Constructions, Parsvnath Developers, Akruti Nirman and Sobha Developers are quoting 40-60% below from its all-time high.

For example, Parsvnath Developers touched an all-time high of Rs 579. Yesterday it closed at Rs 241.25, down 58.33% from its high. Sobha Developers fell 36.80% from 52-week high of Rs 1,179.

Mahindra Gesco, subsidiary of M&M, also tumbled nearly 60%, which touched a high of Rs 1,300.

Mehraboon Irani of Darashaw & Company said that looking at the way the interest rate scenario has changed and it is showing no signs of abetting.

He said that property stocks are basically stocks which are related to the interest rates. "If interest rates continue to go up I think property stocks will take a further beating. People have to be very selective, but as of now till the time we are not very sure that whether we have come at the end of the cycle as far as interest rate hike goes, I think one should still stay away for some more time."

According to Enam Securities, a correction in the real-estate sector might be in the offing, pointing out that pockets in North India show excesses in real estate.

Company	Market Price (Rs)	All Time    High (Rs)	% Loss
PBA Infrastructure	74.7	198.65	62.40
Pratibha Inds	148.1	391.7	62.19
Mahindra Gesco	541.5	1300	58.35
Parsvnath Develo	241.25	579	58.33
Hind Construct	84.2	195.7	56.97
MSK Projects	59.45	137.95	56.90
Ansal Properties	501.15	1134.45	55.82
Madhucon Project	199.4	437.8	54.45
C and C Construct	164.5	350	53.00
Gammon India	291.65	588.95	50.48
Patel Engg	315.6	635	50.30
Gayatri Projects	214.45	423	49.30
Ansal Housing	256.35	499.9	48.72
IVRCL Infrastruc	257.85	460	43.95
Akruti Nirman	415.3	729	43.03
D S Kulkarni Dev	258.8	449.9	42.48
Era Construction	313.8	541.85	42.09
Nag Construct	147.35	236	37.56
Simplex Infrastr	344.3	545	36.83
Sobha Developers	745.1	1179	36.80
Subhash Projects	176.35	273	35.40
Indiabulls Real	275.25	414.8	33.64
Unitech	368	544.4	32.40
BL Kashyap	1144.95	1594.9	28.21
Anant Raj Inds	1060.85	1474.9	28.07

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sunil S Matkar