Wednesday, April 1, 2009

Indian Realty to bottom out in 2010.

Analyzing past cycles in India is very tough, as most developers have been listed for less than three years. Macquarie Research drew parallels from past cycles in Hong Kong. While the physical market dynamics in the two locations are clearly very different, the brokerage succeeded in deriving some striking and relevant conclusions.

“In every one of the past four cycles, stocks recovered 6–9 months before GDP growth. This (in turn) preceded a recovery in rents by another 6–9 months. A late-2009 recovery in property stocks should therefore not surprise us. News flow should improve due to the low base effect in volume and price growth, but we do not foresee a smart recovery. We continue to expect that prices and rents in India will bottom in late 2010, 6–9 months after our forecast of a recovery in GDP growth,” said the brokerage firm.

Macquarie believes IBREL and HDIL are best placed. IBREL has a net cash balance sheet. HDIL has no major refinancing requirement or bullet payment due for the next 12–15 months.

At some stage in the next 3–6 months, DLF should start to look very attractive. However, we believe that the value in its projects is unlikely to be realized in the near term amid a lack of clarity on capital raising. Investors should also consider a ‘venture capital’ approach and invest in a basket of survivors to hedge against ‘black swan’ events.


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