The Godrej Properties stock has skyrocketed 60 percent in a month following a reduction in home loan interest rates and expectations of strong demand in the festive season.
Investors may have channelled funds to other countries, including India, from China, where the Evergrande debt crisis created some uncertainty, and this could be one of the reasons why realty stocks are rallying, analysts said.
Mumbai-based Godrej Properties, with a market capitalisation of over Rs 65,000 crore, was the biggest gainer among stocks in the Nifty Realty Index, which itself gained 35 percent in the same period. The index was the biggest sectoral gainer in this period, beating the Nifty 50, which rose almost 8 percent.
The stock climbed to a 52-week high of Rs 2,409.95 on the BSE on September 29, when the benchmark BSE Sensex fell.
“The reason behind this stellar rally was attributed to expectations of strong demand ahead of the festive season, no property price hike by developers, low interest rate regime and easing of Covid-19 restrictions,” said Ankur Saraswat, a research analyst at Trustline Securities.
Godrej Properties sold 340 homes with an area of more than half a million square feet and achieved sales of Rs 575 crore on the first day of the launch of a project in Noida, the company said on September 22. This seems to have powered the rally in the stock, which gained 27 percent in two days.
The company entered into an agreement to redevelop land in the upscale neighbourhood of Wadala in Mumbai.
“Spread across 7.5 acres, this project will offer approximately 1.6 million square feet of saleable area comprising primarily of residential apartments of various configurations,” Godrej Properties said in a statement on September 29.
Book profits or stay long?
“Godrej Properties’ new launches have picked up in the second quarter, which should help drive a strong quarter-on-quarter (QoQ) pickup in sales. Moreover, the company has a lucrative land bank in some of the country’s prime locations (Mumbai, Pune, Bengaluru and the National Capital Region). This will be developed in the near future, which can drive the stock price higher,” said Atish Matlawala, a senior analyst at SSJ Finance & Securities.
However, he would advise short-term investors to book profits, given the stock’s stellar run in a short period of time.
Overall, the momentum in real estate stocks may continue in the long run as the sector comes out of an extended period of consolidation, said analysts who advised buying quality real estate stocks on every dip.
“With significantly higher month-on-month sales, with rising enquiries and strong execution skills, launch of new projects and expansion projects in FY22 across India, we may expect this momentum to continue and stocks may reach new highs in the short to medium term,” said Saraswat of Trustline Securities.
End of cyclical downturn
“Real estate is coming out of a deep cyclical downturn that’s lasted almost 8-10 years, from 2011-12 to 2020,” said Ashutosh Tiwari, managing director – research, at Equirus Securities.
The sideways movement in prices over this period that improved affordability, a low interest rate scenario conducive for recovery, and the emergence of the Real Estate Regulatory Authority that led to a reduction in unorganised players are conducive factors for a recovery in the property segment over the next 4-5 years, Tiwari said.
He said every drop in real estate stock prices should be a good opportunity.
“Investors who are looking at the sector for the medium to long-term perspective can buy stocks even at current levels,” he said.
The interest rate has been very low since 2020 and banks and housing finance companies have started reducing home loan rates, which are as low as 6.5 percent, to attract demand ahead of the festive season.
Godrej Properties’ total booking value stood at Rs 497 crore in the first quarter of FY22 compared with Rs 1,531 crore a year earlier, and Rs 6,725 crore in FY21.
It leased over 1 lakh square feet of office space at Godrej Two, a commercial property in Mumbai, despite the lockdown. Construction activity continued at most sites even during the lockdown, although at a slower pace. Cash collection stood at Rs 1,201 crore in the first quarter of FY22.
The strength of the workforce continued to be higher and stood at 131 percent of the pre-pandemic level in June, enabling deliveries of projects on time, Saraswat said.
From a low of Rs 505 in March 2020, the stock climbed steadily to touch Rs 1,697 in August 2021. Although the stock fell from that level, it recovered this month, breached the Rs 1,697 level and continued to a 52-week high of Rs 2,409.95 on September 29.
“At this level, one can book part profit and hold the rest for the next level of Rs 2,600-2,750. For fresh entry, one should wait for some correction and if prices come in the range of Rs 1,900-2,000 levels, one can buy for a short-term level of Rs 2,600-2,750,” said Viral Chheda, an analyst at SSJ Finance & Securities.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before making any investment decisions.