MF interest building in real estate companies

MF interest building in real estate companies
The Hindu Business Line, May 27, 2009, Page 10

Positive sentiment after realtors raised funds: Analysts.

Sharvari Patwa, Mumbai

There are signs of renewed mutual funds interest in real estate companies.

Mutual funds’ exposure to this sector tripled in April, though it still constitutes a small proportion of their total equity investments.

The funds’ investments in real estate companies stood at Rs 308 crore at the end of April against Rs 98 crore in March, said a research report by broking firm Bonanza Portfolio.

The absolute numbers are small, but point to a trend as the exposure in the earlier months of the year was minimal, said fund managers.

The BSE realty index rose 37 per cent in April compared with 10 per cent in March.

The fund-raising plans of debt-ridden real estate companies have brought in a wave of positive sentiments for these stocks, said analysts. Investor appetite has been stirred after the Qualified Institutional Placements (QIP) by companies such as Unitech and DLF, as they signal that the real estate companies have enough liquidity to sustain themselves in the downturn, Mr Sameer Narayan, Head of Equities, Fortis Mutual Fund, said.

“With the recent fund-raising by Unitech through a QIP and with Indiabulls Real Estate proposing another and similar plans by several developers, we believe the risk appetite for this sector may be returning,” said a research report from Enam Securities.

Unitech Ltd, the country’s second-biggest real estate developer, has raised over Rs 1,600 crore from selling new shares to QIPs to repay a part of its debt of over Rs 8,900 crore.

Earlier, realty stocks had distressed valuations. But now with the debt overhang decreasing, the stocks are starting to look attractive, said Mr Ajay Argal, Equity Co-head, Birla Sun Life Mutual Fund.

Though the situation has not improved dramatically for the real estate companies, there is some stability in the sector, he added.

In April, many real estate companies brought down prices and there was visible increase in demand, which has led to an optimistic outlook for the sector, said Mr Sanjay Sinha, Chief Executive Officer, DBS Cholamandalam Mutual Fund.

According to fund managers, the increase in exposure to real estate stocks is not across the board but selective.

According to a research report by Sharekhan, top additions to the holdings of the portfolio of equity (mutual) funds include Unitech Ltd, IRB Infrastructure Developers and Indiabulls Real Estate.

Some analysts said the easing of liquidity crunch in these companies does not justify the steep price increase of these stocks.

Share prices of DLF, Unitech Ltd, Parsvnath Developers, IndiaBulls Real Estate have gone up by 26 per cent to 38 per cent in April. These stocks are catching investor fancy in the current market upturn as they are high beta stocks, which gain more than the Sensex in a rally, said Mr Shailesh Kanani, an analyst with Angel Broking.

In April, the Sensex rose by 17 per cent but the BSE-Realty Index gained 30 per cent.

Even as mutual fund houses increase their exposure to real estate stocks, their long-term call is one of guardedness “ as a lot of these companies are showing a keenness to issue debt paper, one will have to review them again in that case”, said a fund manager.