Construction, realty stocks slide on results, debt worries

Shares in infrastructure, construction and real estate companies tumbled on Tuesday as the market mulled a series of poor results reported by major firms over the weekend and rising debt levels hit investor confidence.

Construction conglomerate Jaiprakash Associates and India's largest real estate firm DLF were the two biggest losers on the country's main index, falling 7.8 and 5.9% respectively in a market that fell 0.65%.

Shares in Reliance Infrastructure fell 7.3% as real estate company Unitech saw its stock price slide 4.1%.

"None of the big players are showing major traction on the profit front. The outlook looks grim," said Jitesh Bhanot, analyst at Mumbai-based Emkay Financial Services.

"There are questions of the sustainability of margins for the entire sector."

Jaiprakash said on Saturday its net profit in the fiscal first quarter fell 79% on high interest costs. Unitech said late on Friday its profit almost halved and expressed concern about rising interest rates.

Construction and real estate firms in India have benefited from a boom over the past few years as Asia's third-largest economy revamps its infrastructure, expands industrial capacity and builds homes for a rapidly-growing middle-class.

But stubbornly high inflation, which failed to moderate as much as hoped on Tuesday, a succession of interest rate rises since March 2010 from a hawkish central bank, and soaring commodity prices threaten the pace of growth.

The Mumbai realty index hit its lowest point in at least a year on Tuesday, and closed at Rs 1710.54, also its lowest closing level in at least a year.

"This (correction) is something that has been looming for the past couple of quarters, given their debt sheets," said Sameer Panke, analyst at Mumbai-based Dolat Capital.

"And looking at the hawkish stance from the Reserve Bank, there is a case for a further increase in interest rates."

Jaiprakash closed at Rs 57.15 per share, down 7.8%, while DLF closed at Rs 188.85 per share, down 5.7%. Unitech closed at Rs 27.75 per share, down 4.6%, and Reliance Infrastructure closed at Rs 455.80, a fall of 5.7%.

(USD 1 = Rs 45.345)