70% of Nifty Realty stocks delivered multibagger returns in one year with Sobha leading the pack; check others

In recent years, real estate stocks have distinctly excelled in the Indian financial markets. Setting new record highs and consistently achieving significant milestones became a regular occurrence for the majority of stocks in this sector.

In the past eight trading sessions alone, the Nifty Realty index surged by 15%. Today, it reached a new peak of 1,134 points. Year-to-date, the index has already risen by 44%. Notably, all 10 constituents of the index have gained between 20% and 121% during this period.

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Looking at the yearly performance, 7 out of the 10 stocks in the index achieved multibagger returns in last one year. Sobha led the pack with a remarkable gain of nearly 290%, followed by Prestige Estates Projects with a gain of 238%.

Additionally, Brigade Enterprises, Macrotech Developers, Phoenix Mills, Godrej Properties, and Sunteck Realty all recorded substantial gains ranging between 100% and 140%.

What's driving this stellar performance?

This exceptional performance can be attributed to the robust sales growth, continuous new developments, strategic price adjustments, and improving financial indicators within the industry.

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In FY24, there was a strong surge in demand for residential properties across major Indian cities, driven by increasing disposable incomes, evolving lifestyles, and a rising number of high-net-worth individuals.

The demand for luxury homes has surged notably, driven by demographic shifts towards more affluent lifestyles. This trend reflects an increasing desire for residences that offer amenities and comforts surpassing those found in conventional housing.

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In today's modern world, there's a growing demand for residences that offer top-notch amenities for entertainment, fitness, and relaxation, all conveniently located nearby, leading individuals to seek homes that provide a high level of comfort, convenience, and luxury.

Investors are increasingly allocating more of their portfolios to the real estate sector, motivated by its robust potential for revenue growth. This trend is further supported by the country's transition from a low-income to a mid-income economy, which is expected to drive demand for residential properties.

Hitting the billion mark

In FY24, Indian residential real estate achieved a milestone by surpassing the billion-square-foot sales mark, recording a notable 20% year-over-year increase to reach 1.1 billion square feet.

This impressive performance was supported by robust sales volumes, accompanied by an 11% year-on-year improvement in prices and aggressive inventory liquidation totaling 82 million square feet in FY24. Consequently, inventory levels have decreased significantly to just 15 months.

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According to domestic brokerage firm Kotak Institutional Equities, FY24 pre-sales surged to ₹987 billion, reflecting 41% year-on-year growth. Leading this growth were companies like Godrej, Prestige, Signature, and Brigade, followed by Sobha and Lodha.

Looking ahead to FY25, the brokerage anticipates a combined launch pipeline of 140 million square feet (with a gross development value of ₹1.7 trillion), compared to 88 million square feet in FY24, which is expected to bolster sales performance across the sector.

Among listed companies, Godrej, Prestige, Signature, and Brigade delivered exceptionally strong growth in FY24. With existing inventory at multi-year lows and ongoing demand for new launches, the brokerage foresees continued robust sales momentum into FY25.

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Highlighting the sector's valuation, most residential real estate stocks are currently trading at 7–12 times EV/EBITDA for FY26 estimates—a range reflecting strong business fundamentals and increasing investor interest.

Maintaining a constructive outlook, Kotak Institutional Equities identifies DLF, Signature Global, and Brigade as attractive entry points for investors.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.