Realty, consumer durables sectors lead gains among sectoral indices in 2017

Mumbai: Realty and consumer durables have been the top gainers among sectoral indices in 2017, as investors shrugged off worries arising from the government’s shock scrapping of all high-value banknotes overnight in November.
Year-to-date till 28 April, the BSE Realty index and BSE Consumer durables indices have gained 52% and 38%, respectively.
The realty index has been riding high on the back of lower mortgage rates, implementation of Real Estate (Regulation and Development) Act, or RERA from 1 May, and the thrust on affordable housing by the government in the Union Budget.
Indiabulls Real Estate Ltd, DLF Ltd and Godrej Properties Ltd are the top gainers with 110%, 67% and 53% gains so far this year, respectively.
“With the implementation of Rera, the sector will become more transparent, and it could lead to massive consolidation in the sector. The push will be towards organised sector from unorganized one,” said Parikshit D. Kandpal, a senior analyst at HDFC Securities.
“Government’s push on affordable housing through subvention and discounts through various schemes, and lower mortgage rates are also positive. The expectations of a recovery in economic growth and income levels are also expected to spur demand,” added Kandpal.
Cleared by Parliament last year, the new realty law would have one regulator in each state for the sector.
It has stringent provisions, including imprisonment for failing to comply with any of the directions of the Act. Only projects with all approvals in place can be sold to customers under the new law. All regulatory approvals, the timeline for completion and master plan of the project should be disclosed before the launch, which would provide clarity and transparency to the buyers, according to the law.
While these developments may have a short-term impact or a delay in new launches, over the long term, the benefits are manifold. It brings much-needed transparency and credibility to the real estate sector, making it an attractive investment destination.
That said, the valuations look expensive for the realty sector at this point. BSE Realty index trades at 23.15 times fiscal year 2018 earnings, compared to a five-year average of 13.28 times.
“Valuations are expensive, as all the positive developments will take time to materialize, and Rera might dampen growth expectations for the next 4-5 quarters,” said Kandpal.
“I am cautious on the stock prices after the rally. There is too much of exuberance in the real estate stock prices right now,” added Kandpal.
For the consumer durables sector too, the shift to the organized sector seems to be a huge positive.
The top gainer in the pack was plastic furniture maker Nilkamal Ltd, which jumped 74% year-to-date. Following next is Crompton Greaves Consumer Electricals Ltd, which manufactures consumer products ranging from fans to light sources, pumps and household appliances. It gained 51% in the same period.
Watch and jewellery company Titan Co. Ltd rose 45%, while air conditioner maker Blue Star Ltd rose 46%.
“The whole thrust to organized sector from organized one on the back demonetisation, and upcoming implementation of GST have boosted the listed players in sectors such as jewellery, air conditioner companies,” said Gautam Duggad, head of research at Motilal Oswal Securities Ltd.
“Expectations of demand revival in FY18, along with expectations of a good monsoon bode well for the consumption stocks. However, if the sharp rise is not accompanied by earnings growth it may pose risks to the rally,” added Duggad.

Leave a Comment