Nifty Realty surged 114% in last 1 year; will the trend continue?

In the last year, there has been a remarkable surge in the real estate market, evidenced by a staggering multibagger return in the realty index. This impressive uptrend can be primarily attributed to robust pre-sales figures reported by realty firms. The buoyancy in stock prices of real estate companies can be attributed to several factors, including announcements of upcoming projects, promising pre-sales figures, and expansions into new markets undertaken by these firms.

The Nifty Realty index soared 114 percent in the last 1 year as against an around 30 percent jump in benchmark Nifty. Meanwhile, in 2024 YTD (year-to-date) as well, the realty index has outperformed the benchmark. The index rose 5.5 percent versus a 2 percent gain in Nifty.

Constituents

All constituents of the Nifty Realty index gave positive returns in the last 1 year with 50 percent (5 of 10) of them delivering multibagger gains. Prestige Estates soared the most, over 176 percent in the last 1 year, followed by DLF and Sobha, up 144 percent and 142 percent, respectively. Meanwhile, Macrotech Developers and Phoenix Mills also jumped 133 percent and 108 percent, respectively, in this period.

Read here: Godrej Properties vs DLF: Which realty stock should you pick for long term?

On the other hand, Godrej Properties, Indiabulls Real Estate, Brigade Enterprises, Oberoi Realty and Sunteck Realty also jumped between 31 percent and 99 percent each.

Why did the realty index deliver such robust returns and will this trend continue in 2024? Let's see what experts have to say. They also list their top picks from the space.

Sheersham Gupta, Director and Senior Technical Analyst at Rupeezy

The Nifty realty index has seen a surge of over 100 percent over the past year. This stellar performance can be attributed to rising real estate prices and a surge in demand. Since 2020, the Indian housing market has been experiencing a notable upswing, with housing sales doubling and supply struggling to keep pace. Volumes in the Indian housing sector surged by approximately 25% year-on-year in 2023. This has been reflected in the balance sheets of these companies resulting in such a huge rally.

This rally is expected to continue given the huge project launches in the pipeline. With the expected rate cuts this year, home financing will be more affordable resulting in more demand in the sector which is expected to act as the tailwind. The top picks from the sector will be Macrotech, Prestige, and DLF.

Read here: Prestige Estates: Keep one eye on launches, another on debt

Atul Parakh, CEO - Bigul

Over CY23, real estate prices were affordable compared to historical prices. This, combined with income growth, especially in the upper middle class and affluent class, led to a surge in demand for premium real estate. This benefitted real estate companies that were catering to this segment of the market. The companies saw improved revenue growth, higher margins, and profitability, which translated to share price growth. Limited new supply in some markets, particularly urban areas, could also have contributed to real estate price increases. Decreasing interest rates, a strong and growing economy and positive government policies give us a positive outlook on the sector. Stocks to track in this space are DLF, Shriram Properties, Macrotech Developers, Sunteck Realty and Oberoi Realty.

Sanjay Moorjani, Research analyst, SAMCO Securities

Over the past year, the realty index has experienced a remarkable surge, soaring by nearly 114 percent. This surge has been largely fueled by some of the constituents of this sectoral index reporting robust pre-sales numbers. However, examining the recent quarterly numbers reveals that many of these companies have reported a year-on-year decline in sales. Despite this, the stocks have continued to rally, primarily driven by announcements of new launches, promising pre-sales numbers, and expansion into new markets by these companies.

Read here: IRCTC, Piramal Ent among 6 stocks that can jump 8-23% in the next 3-4 weeks

These developments reflect the market's anticipation of future growth which already seems to be priced in. So, it remains to be seen how the market factors in the valuations of these companies from hereon and the performance to be delivered by them going forward.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.