Investors are now upbeat on housing finance and real estate companies, thanks to the budgetary measures intended to give housing a boost. But one should be cautious as the earnings of the next quarter could well be the real measure for sustainable exuberance in the sector, say experts.
Investors can expect 15-40% returns on investments in shares such as Satin Creditcare, HDFC, DHFL, Godrej Properties, Sobha Developers and DLF over a year’s time, say brokers.
“Some re-rating in stock valuations can be justified due to the budget proposals,” said Ajay Bodke, CEO and chief portfolio manager of Prabhudas Lilladher.
“Investor money is coming in. Sustainability of higher prices is dependent on strong earnings growth for those companies in the medium term… Any faltering in earnings growth will jeopardise these level of high valuations,” he added.
The Union Budget for 2017-18 has given infrastructure status to the affordable housing segment, a move that will help housing finance companies raise funds at cheaper rates.
It has also proposed to increase allocation for the Pradhaan Mantri Awas Yojna (PMAY), which would pave the way for construction of more houses. Time for completion of projects too has been extended to five years from three years.
“With relatively lower debt on their balance sheets, some real estate companies are drawing investor attention now,” Sandeep Nayak, CEO, Centrum Broking.
Demand for affordable housing finance is likely to increase following higher allocation for PMAY, ICRA said in a report. This augurs well for builders and lenders.
“Budget has given relief for both housing finance and real estate companies,” said Sanjiv Bhasin, executive VP, market & corporate affairs, IIFL. “Greater access to funds, coupled with extended areas of construction, has expanded the scope for growth of such companies.”
Real estate investment trusts (REIT), which will bring in transparency and lower the cost of funds, will see huge investor response, he said.
Shares of real estate companies Sobha Developers, DLF and Godrej Properties have surged 5.7-17.4% in the past six trading sessions, show ETIG data.
During the period, shares of Housing Development Finance Corp (HDFC), Dewan Housing Finance, and Satin Creditcare have appreciated by 2.2%-16.2%.
“Speculative bets have gone up seeking short-term gains in real estate stocks while some investors are sitting on mark-to-market profits in HFC shares,” said G Chokkalingam, founder, Equinomics Research & Advisory. “The government is promoting affordable housing, where all real estate companies will rush to grab market share.”
ICRA expects the affordable housing finance market to double in size from Rs 96,000 crore as on March 31, 2016 over the next two years.