This COVID-hit sector is shining bright now: 2 stocks turn multibaggers, 8 rise up to 78% in FY21

The realty index had recovered more than 70 percent from the lows but has still not reached the pre-pandemic level. Meanwhile, Sensex is near all-time high levels

Stars are aligning for the realty sector which was one of the worst-hit in the aftermath of COVID-19 outbreak.

Nifty Realty, which fell over 40 percent in the first three months of 2020, managed to bounce back later and is now up over 70 percent so far in FY21.

Sobha and Godrej Properties more than doubled investor wealth. Meanwhile, eight stocks gained 34-78 percent - Phoenix Mills, Oberoi Realty, DLF, Prestige Estate, Indiabulls Real Estate, Brigade Enterprises, Mahindra Lifespace Developers and Sunteck Realty.

"The reality sector was one of the worst-hit by the COVID-19 pandemic. With the country-wide lockdown, the major projects were at a halt but when the government had instructed to start the work with minimal restrictions the demand for the realty rose,” Gaurav Garg, Head of Research, CapitalVia Global Research Limited told Moneycontrol.

“Factors like a continuous rate cut from the central bank and attractive prices of the properties may have attracted the buyers during this time. If we look at the BSE Realty index which made a low of 1259 in May had recovered more than 78 percent which is higher than the BSE Index,” he said.

Recent data suggest that things are picking up for the real estate sector. And, with encouraging news around the vaccine, realty as a sector is seen as a recovery play.

With interest rates likely to hover near lows, chances of pick up in the real estate sector are high.

“Declining interest rates is a positive for REITs that have so far settled for loan-to-value ratios of around 15 percent in order to optimize dividend yields,” Kotak Institutional Equities said in a note. “More importantly, the spate of new transactions—Blackstone acquiring the assets of Prestige (8.5 percent cap. rate) and more recently GIC looking to take part-equity ownership in retail as well as office assets of Phoenix Mills (6.5 percent cap. rate) are encouraging and highlight the continued optimism of global investors in Indian annuity assets,” it said.

“I am hopeful that the real estate cycle starts again, maybe gradually. All the enabling factors like increasing affordability with stagnant prices for years, coupled with income growth that has happened over the same period, lowest in the decade mortgages rates and some government incentives are in place now,” Atul Bhole, Senior Vice President – Investments, DSP Investment Managers said

What should investors do?

The Real Estate sector has performed in line with BSE Sensex, and Nifty. Hence, if someone plans to allocate fresh money to the sector then remain stock-specific or invest via a thematic fund.

The realty index had recovered more than 70 percent from the lows but has still not reached its pre-pandemic level. Meanwhile, Sensex is near all-time high levels.

“The demand may continue for another 2-3 quarters. As there is growth in all the reality stocks, we believe it is better to invest in a thematic fund instead of opting for the direct equities,” says Garg of CapitalVia Global Research Limited.

Looking at the technical charts, he likes Sobha Ltd, Godrej properties Ltd that may have an advantage over other stocks. Godrej is making fresh highs and Sobha Ltd still has the potential to grow in the next few years.

Source - Moneycontrol.com

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