MUMBAI: Shares of real estate companies slumped up to 20% on Wednesday, as the sector is predicted to be the greatest casualty from the government’s move against black money. Investors should steer clear of the area as the outlook seems bleak, said market players.
The Nifty Realty was the worst performing sectoral indices, slipping 11.60% at the time after the government scrapped Rs 500 and Rs 1000 notes in its combat against black money and fake currency.
The index has plunged 17.07% in the past month and has risen 1.51% since January 1.Among the index constituents, Delta Corp was the biggest loser, plunging nearly 20% on Wednesday, while Indiabulls Property fell 17.87%. DLF and Housing Development and Infrastructure were one of the others that bore the brunt of the selloff, each declining more than 16%. Phoenix Mills, however, staged a recovery right at the end during the day, ending 2.75% higher.
“We remain negative on real estate space,” said Sunil Singhania, chief investment officer, equity investments, at Reliance Mutual Fund. “It is going to be very tough for these companies to create demand, especially after the government’s go on to eliminate black money. Housing finance companies may be impacted for an extent, particularly those that stick to a loan-against- property model.”
Housing finance companies did get hit within the selloff on Wednesday. HDFC slid 2.65%, while LIC Housing Finance fell 4.10%, Indiabulls Housing Finance dropped 7.97% and Dewan Housing Finance declined 10.30%.
“Investors should stay away from real estate sector,” said Soumendra Lahiri, head of equities at L&TMutual Fund. “Though the move to curb for unaccounted wealth is good, it will cause the sector pain,
especially in the near term. Demand within the space will not be expected to pick up in the near future either.”
The government move to scrap the 2 high-denomination currency notes is expected to have far-reaching
effects on several sectors. According to analysts, real estate, infrastructure companies and jewellery makers are expected to be the worst hit as the use of black money is more prevalent in these sectors.
“There is going to be considerable impact on real estate sector,” said Ritesh Jain, the main investment officer at Tata Asset Management. “Land prices could see a sharp fall, creating chaos initially but in alengthy-term this can bring the middle class back in the market, thus curbing the greatest ever inventory build-up in India’s real estate market.”