Shares of real estate companies were back in the green on Wednesday, a day after trading mixed amid a broad sell-off. Even as global peers remained mixed on escalating Russia-Ukraine tensions, the Indian stock market today witnessed a positive investor sentiment.

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Amid increasing housing demand, the sectoral gauge Nifty Realty rose more than 3 percent today. The index jumped 3.32 percent in intraday trade, recovering from the 3.18 percent loss it suffered in the past five days.

Sobha Limited stock was up 6.45 percent to an intraday high of Rs 776 on NSE. The shares were trading 5.61 percent higher at Rs 769.85 at the time of writing. However, in the past month, the stock has erased 13 percent of investors’ wealth as against the benchmark scrip Nifty which is rose 0.06 percent during the period.

Shares of DLF have jumped more than 5 percent in trade and were up 4.5 percent at Rs 338.95 on NSE at 12:20 pm. The stock, however, has declined 8.5 percent in a month’s time.

Market expert Mitessh Thakkar of earningwaves.com gave a sell rating to DLF shares with a stop loss of Rs 330 and a target price of Rs 312.

The risk-off sentiment in the market, fears of the rising interest rate cycle, and inflation working against the real estate sector in general recently put pressure on the stock.

India Bulls Real Estate, which closed 10 percent higher yesterday, gained 4.4 percent in intraday trade today. However, in afternoon deals, the shares limited the upside and were trading 1.5 percent higher at Rs 115.40 on NSE.

The uptrend continued after Indiabulls Housing Finance and its officials submitted to the Enforcement Directorate the data the central agency sought regarding some of its clients.

The said ED investigation did not pertain to Indiabulls Real Estate and has no bearing on the business and operations of the company, according to a clarification issued by the company.

Sunteck Realty shares rallied 6.8 percent to an intraday day high of Rs 453.55. The construction company’s stock, which was trading 5.60 percent higher at Rs 448.15, witnessed profit-booking in recent days, in line with peers. Investors lost 10 percent of the sum invested in Sunteck in the last month.

According to Parikshit D Kandpal, CFA, HDFC Securities, the real estate sector is on a cyclical high. He explained that upcycles are driven by rising income levels, narrowing of rental yields and interest rate corridor gap, structural changes like market share gains by organised players, wealth effect, joint family nuclearization, and confidence in strong economic growth.

“These tailwinds are favouring a real estate revival and have led to an unprecedented pick-up in sales. A large share of household savings is being directed into home purchases, which could lead to disproportionate gains for strong branded players. The collapse of the tier-2 developer ecosystem is changing the supply chain, with competitors becoming partners and land bank suppliers,” he told CNBC-TV18 on Tuesday.

HDFC Securities is building a case for playing this cycle by betting on local market leaders and identifying new challengers who previously had the right to win but were hesitant to exercise it, he said.

“COVID-19 stood out as a big real estate disruptor and accelerated housing demand conversion,” he said. Kandpal also pointed to stamp duty cuts, developer discounts, high attrition and resultant hikes, the democratisation of ESOPs to cover a broader employee spectrum, achievement of accelerated unicorn status, and stock market rally, all-time low mortgage rates and all-time high affordability as factors that have provided a supportive environment.

He, however, noted inflation is a key risk that may drive input cost and mortgage rates higher and derail the recovery. “We still believe that developers have headroom to absorb inflation as greater transparency over time has reduced costs of capital and organised developers enjoy 25-30 percent lower funding costs than tier-2 players,” he said.

HDFC Securities’ top picks are DLF, Oberoi, Phoenix Mills, Mahindra Lifespaces, and Brigade Enterprises.

Last week, ace investor Rakesh Jhunjhunwala said he was very bullish on the commercial real estate sector. He, however, said real estate is the only space where a developer is not bothered about the cost of construction.

He said he wasn’t a big supporter of new-age developers getting listed. “If I was a developer, I would not list. It's not a business suitable to listing,” he said at a virtual event.

Also Read: Will Rakesh Jhunjhunwala be third time lucky in DB Realty?

Blue-chip companies have a high return on capital but until now real estate companies have only burnt capital, Jhunjhunwala said, adding that one has got to have the size to list. Large companies like Lodha and DLF who have large portfolios should surely list, he said.

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First Published:Feb 23, 2022 1:44 PM IST