Realty firms shares slump up to 20% after govt’s move against black money

Mumbai: Shares of real estate companies slumped up to 20% on Wednesday, as the sector is expected to be the biggest casualty of the government’s move against black money. Investors should steer clear of the space as the outlook seems bleak, said market players.

The Nifty Realty was the worst performing sectoral indices, slipping 11.60% on the day after the government scrapped Rs 500 and Rs 1000 notes in its fight 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 Real Estate fell 17.87%. DLF and Housing Development and Infrastructure were among the others that bore the brunt of the selloff, each declining more than 16%. Phoenix Mills, however, staged a recovery towards the end of the day, ending 2.75% higher.

“We remain negative on the 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 generate demand, especially after the government’s move to eliminate black money. Housing finance companies could also be impacted to an extent, particularly those that follow a loan-against-property model.”

Housing finance companies did get hit in 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 the real estate sector,” said Soumendra Lahiri, head of equities at L&T Mutual Fund. “Though the move to curb for unaccounted wealth is good, it will cause the sector pain, especially in the near term. Demand in the space is not expected to pick up anytime soon either.”

The government move to scrap the two high-denomination currency notes is anticipated 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 will be considerable impact on the real estate sector,” said Ritesh Jain, the chief investment officer at Tata Asset Management. “Land prices could see a sharp fall, creating chaos initially but in a long-term this will bring the middle class back in the market, thus curbing the highest ever inventory build-up in India’s real estate market.”