The BSE Realty index, which declined by nearly 90% over a fifteen month period from December 2007 to February 2009, has jumped by over 170% in just three months from March 2009 to May 2009. The concerns related to liquidity of the real estate companies have been key reasons for the performance of the stocks. Despite that, the companies are trying to improve their liquidity condition by selling equity and assets, raising capital through QIPs or by restructuring debt repayments.
I believe the fundamentals would remain weak. The earnings of real estate companies are expected to be subdued on weak housing demand. Though the focus on low-cost housing by real estate players has improved the volumes, but due to high gestation period, its impact in P&L will be visible only after a couple of quarters. The margins in this segment are lower. On the valuation front, the stocks seem to be running ahead of their fundamentals, particularly factoring in the high leverage.
Thus, I recommend booking profits in all real estate stocks (for reasons mentioned above) and take an entry into Mahindra Lifespace and Indiabulls Real Estate.
