The sell-off in real estate stocks amid fears of rate hikes and prolonged higher inflation seems to have abated, as the sector turned out to be one of the best performers during the week ended March 3. While positive news flows form leading players are rubbing on other developers, contraction in valuation also weighed investors inclination to the sector.

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The gauge for realty stocks – Nifty Realty index has surged 8.3 percent in the last one week compared to less than 1 percent gains clocked by the benchmark Nifty50. The Realty index had fallen 10.8 percent in 2022, against Nifty50’s gain of 4.3 percent.

The valuation of Nifty Realty Index has corrected as much 46 percent since November 2021. The gauge currently trades at 27.6 times of its one-year forward earnings, Bloomberg data show.

Also read: Mumbai’s real estate market booming with sharp rise in sale of luxury apartments

According to Jefferies, developers such as Macrotech Developers, Godrej Properties, Prestige Estates Projects and DLF are currently available at reasonable valuation or below their long-term averages.

"We find the 40 percent valuation contraction since late 2021 is already near past cycle levels. Valuations are now at pre-RERA reform levels; ignoring the much-improved sector discipline and also the strong housing cycle," the foreign brokerage said in an investor note.

While shares of Macrotech Developers rallied as much as 43 percent during the week, Godrej Properties put on 8 percent, followed by Oberoi Realty and Phoenix Mills, each adding 5 percent during the same period.

For the nine months ended December 2022, the pre-sales for top-10 listed developers registered 37 percent year-on-year growth in value terms. Moreover, the industry leverage levels have continued to decline on strong cash flow generation, added Jefferies.

Also Read: Macrotech Developers shares slip over 10%, hit 52-week low

(Edited by : Anushka Sharma)