Real estate stocks seem attractive amid rising consolidation, healthy demand; DLF, Prestige, Brigade top picks: Nuvama

Housing demand in India’s top 7 cities improved 28% year-on-year (YoY) in April 2024, while it increased 17% YoY in 2024 so far. However, new launches plummeted 10% YoY and supply dipped 15% YoY.

Unsold inventory continued to improve as it declined 7% YoY with inventory months falling to 15 in April from 19 in the same month last year. Moreover, the correction in unsold inventory levels has lifted prices in all the major cities. Average home prices surged YoY in all top 7 cities during the month. 

With the Reserve Bank of India (RBI) pausing rate hikes and real estate developers ramping up business development, Nuvama Institutional Equities believes the sales momentum would improve, particularly for organised developers. 

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“Over the medium to long-term, we anticipate the consolidation in favour of organised developers to gather steam. Moreover, rising capital intensity of the realty business, credit crunch and focus on execution are likely to aid developers with strong balance sheets and established brands. With the uptick in the housing space along with the comfort on the debt reduction front, developers have ramped up their business development activity, leading to the strengthening of launch pipelines and spurred pre-sales growth,” the brokerage said in a report. 

Organised developers are witnessing an improvement in their cash flow generation post-COVID, which shall help them gain market share. Developers with robust balance sheets shall also benefit from attractive business development opportunities. Overall, the brokerage reckons stronger players would gain market share, going ahead.

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It expects launches to remain contained due to liquidity constraints. With valuations remaining comfortable on a relative basis, the brokerage firm argues it is a good opportunity to enter realty stocks. 

“We believe realty stocks are attractive from a medium-term perspective in light of rising consolidation. With investors increasingly gaining confidence about housing sales trajectory, we believe the odds for the next leg of re-rating are high for developers with sizeable land banks,” Nuvama Equities said.

Its top picks in the sector include DLF, Prestige Estates Projects and Brigade Enterprises. The brokerage firm has a ‘Buy’ rating on these stocks.

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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 making any investment decisions.