Realty shares in demand; HDIL surges 10%

At 1004 hours, S&P BSE Realty index, the largest gainer among sectoral indices, was up 3.2% at 1,829 compared to 0.33% decline in the benchmark S&P BSE Sensex.

The National Stock Exchange (NSE) CNX Realty index too surged 3.5% against 0.25% decline in CNX Nifty.

Among the individual stocks, HDIL has rallied 11% to Rs 107 on BSE on back of heavy volumes. The stock hit a high of Rs 110 during intra-day trade and has seen a combined trading volume of 21.24 million shares on BSE and NSE.

In past four trading sessions, HDIL stock has zoomed 34% from Rs 80 on January 23, after Macquarie upgrade the stock to Outperform, raising target price to Rs 104.

The increase is driven by debt reduction and lowering of discount to NAV on account of improving visibility of launches, Abhishek Bhandari, analyst at Macquarie Capital Securities India said in a report.

“HDIL is a high risk; high return stock where news flows often remains volatile. We think that if the management delivers on the debt reduction and new launches, the stock can re-rate significantly,” added analyst.

DB Realty, up 8% at Rs 93 on BSE, has rallied 39% in past eight trading sessions from Rs 67 on January 20, after the company said its project DB Orchid Heights in Mahalaxmi, Mumbai has received nod from Maharashtra Government for development of 3.0 floor space index (FSI) versus earlier 2.5.

The company said, the increase in FSI offers substantial positive development for the company and the project offers substantial revenue potential for the company.

Meanwhile, analysts at India Rating and Research (Ind-Ra) expects demand for both office and retail spaces to pick up during FY16, as better economic growth and customer sentiments boost net hiring by IT/ITeS and banking financial services insurance sectors and also revive expansion plans of both local and foreign retailers.

The relaxation of thresholds for foreign direct investment in real estate projects is likely to improve fund inflow. The announcement of the guidelines for the introduction of real estate investment trusts and the clarification of tax pass-through status for such vehicles are also positive for the sector, as they improve fund availability to companies owning rent-yielding assets, Ind-Ra said a report dated January 27, 2015.

However, Ind-Ra maintains a negative to stable outlook on the real estate sector for FY16. This is because demand drivers and affordability remain weak, given sluggish economic growth and high property prices. These factors have resulted in falling unit sales and EBITDA margins and thus deteriorating credit metrics for the sector.

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