Why Saurabh Mukherjea avoids real estate investments: ‘Not sure where is money coming from’

The current surge in real estate prices, Mukherjea says, is reminiscent of what happened in 2014–2015.

Real estate stocks are exuberant, with the Nifty Real Estate Index gaining over 60 percent so far this year. On a YTD basis, major listed real estate players have also seen given healthy returns. For example, stocks of Prestige are up 117.2 percent and Brigade Enterprises is up 74.8 percent.

Even if one looks at the recent IPOs in the space, real estate developer Signature Global which was listed in October 2023, has seen stocks gain nearly 70 percent since listing and was last trading at Rs 800 on December 5, 2023.

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However, the sector is not appealing enough for Marcellus Investment Manager’s Saurabh Mukherjea to invest money. Among his reasons to stay away from the real estate sector is the struggle for shareholders to make money. Given the absence of entry barriers, the return on capital goes into feeding expansion, leaving little for shareholders, Mukherjea said.

Also, the surges in real estate spending in places such as the NCR region and Bangalore are raising concerns about the source of the money coming in, Mukherjea said in an interaction with Moneycontrol.

He noted that cash in circulation as a percentage of GDP is now significantly above the levels it was at demonetisation. Currently, the velocity of cash is low, so money is moving less. But despite that, the amount of cash in circulation is higher. This, he says, suggests that people are once again using cash as a store of value rather than a medium of payment.

Real estate sector, in the past, has been known to absorb large quantities of cash payments.

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The current surge in real estate prices, Mukherjea says, is reminiscent of what happened in 2014–2015; “as many of us know, that was an era where the colour of money in India was quite funny.” There is now again a rise in demand for means to convert black money to white, resulting in black money coming again into real estate, Mukherjea says.

While Marcellus avoids investing in the real estate sector, Mukherjea says the firm prefers to look at the building material components instead, as that segment is also seeing similar growth as real estate but with the advantage of the return on capital being above the cost of capital. Marcellus invests in building material stocks such as Asian Paints, Pidilite Industries, Astral Poly Technik, etc.

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