After over 3 years of slump, the real estate sector appears to be seeing some revival. While COVID-19 threw some unprecedented challenges to the sector, government initiatives via the PM Awas Yojana have aided growth this year, especially in the affordable and mid-housing segments.
According to a report by Knight Frank India, aided by the 3% cut in stamp duty by Maharashtra government, home sales volume in Mumbai recorded a massive 67% year-on-year increase in November at 9,301 units, when compared to the same month last year. It is the highest ever registrations seen in November over the last nine years. The registrations were 17% higher than in October.
"Limited period stamp duty cut continues to remain the biggest catalyst for residential sales in Mumbai," said Shishir Baijal, Chairman and Managing Director, Knight Frank India. "As income streams are coming back to normal, we believe that more buyers will come to the market before the end of the financial year to make most of this opportune time to buy their dream homes," he added.
Industrial demand for land, too, seems to be picking up as companies look at deciding to expand now as it takes at least 2 to 3 years for the expansion projects to go through.
After COVID-19 outbreak, developers started offering virtual property tours and interactions in a bid to sell excess inventory.
A nationwide lockdown caused companies to pause their real estate expansion decision till economic recovery reaches pre-COVID levels and adding to this was the mass exodus of migrant labourers out of metro cities that delay re-starting of partially constructed infrastructures.
While the demand is not reached the pre-COVID level yet, cement stocks are gaining due to improving demand scenario and increase in realisation.
Home loan rates are attractive
The sales of residential spaces are set to pick-up due to low home loan rates, ease of doing business (and registration), cut in stamp duties announced by various state governments, affordable EMI options, incentives from PM Awas Yojana and attractive property prices as developers sit on unsold inventory.
Vaccine cheer adds to the optimism
The hopes of a faster rollout of vaccines have raised hopes of economic revival. The rental market is expected to gain momentum as offices enhance capacities after the vaccine is rolled out.
"A lot of the growth in the economic numbers will revolve around the property and construction sectors and in that respect, one of the best proxies would be the cement, steel and also to some extent the banks as well," Sean Darby, Global Head-Equity Strategy at Jefferies told CNBC-TV18.
Independent market expert Sandip Sabharwal of asksandipsabharwal.com is bullish on cement stocks as he believes that the real estate sector is set to see strong revival across the board. His picks in the sector include UltraTech Cement, JK Lakshmi Cement, JK Cement and India Cement.
Angel Broking is bullish on UltraTech Cement and JK Lakshmi Cement.
Antique Stock Broking estimates industry EBITDA to grow 10% CAGR over in FY20-FY23 (revised upwards by 1-5%).
"In terms of picks, we like Ultratech as our top pick, followed by Ambuja/ACC. For ACC, Ambuja, clarity on royalty change will be watched closely. In mid/small-cap space, we find Birla Corp, Dalmia, JK Lakshmi as most attractive, while recommending accumulation of JKCement on dips," the brokerage was quoted in Moneycontrol saying.
Correction in cement stocks make valuations attractive
Shares of major cement players like Ramco Cements, Dalmia Bharat, Deccan Cements, UltraTech Cement, India Cements, JK Cement, Ambuja Cement, Shree Cement, ACC, JK Lakshmi Cement, and Heidelbergcement India declined 1.3-4.2% on Thursday after fair trade regulator Competition Commission of India (CCI) initiated a probe into possible cartelisation by the firms.
Brokerage firm Motilal Oswal said that these allegations will sour near-term sentiment on the sector and possibly slow any price hikes expected in the upcoming busy season from January to March. However, it remains positive on the sector on the back of improving demand and utilisation and rated UltraTech Cement as its top pick among the large-caps.
Dalmia Bharat is Motilal Oswal's top pick in the mid-cap cement segment and sees ACC as a value pick. On the other hand, it does not see much upside in Shree and Ramco whose potential market share gains are already priced in, it said.
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About the author
Olga Robert is an M.Com graduate covering equity markets and personal finance for nearly three years. Her interests include tax planning, equities, DIY personal finance management and government schemes.