The index is up 60 per cent for Calendar 2021, and at current pace looks set to match the 110 per cent eye-popping gains of 2017.
The rally has benefited most mutual fund managers, who had continued to increase exposure to the sector despite the second wave of Covid-19. As a group, the top 20 mutual funds by assets under management have been overweight on the sector for the best part of a year.
Of the top 20, 14 mutual funds including heavyweights like HDFC Mutual Fund and ICICI Prudential Mutual Fund raised their exposure to real estate stocks during the year, data compiled by Motilal Oswal Financial Services showed.
To be sure, real estate stocks made up less than 1 per cent of the overall equity allocation for most of the top 20 funds given the sector’s diminishing stature among investors over the past decade due to a structural down cycle.
Sundaram Mutual Fund and DSP Mutual Fund were the only two funds that trimmed allocation to the sector between April and August, likely because they feared a delay in the recovery for the sector following a cruel second wave of the pandemic in April-May.
Real estate companies have seen buoyant recovery since July, as highlighted by Godrej Properties’ announcement last week that it sold more than Rs 500 crore worth of inventory on the first day of the launch of Phase II of its Godrej Woods project in Noida, Uttar Pradesh.
“[There is] growing evidence that a new residential property cycle has commenced after a seven-year downturn despite the setback triggered by the Delta wave,” Christopher Wood, global head of equities at Jefferies, wrote in his latest GREED & fear report.
Property registrations in cities like Mumbai and Delhi were up 45 per cent and 56 per cent in July-September compared with the same period in 2019. At the same time, unsold inventory levels in the sector are coming down rapidly and that could grant pricing power to the organised developers in the coming years as supply will take time to catch up with the robust demand.
“We are seeing a nice upcycle coming through in the industry, which is reflected in the stock prices of the real estate companies,” said Dipan Mehta, Director at Elixir Equities.
Listed real estate companies now have much healthier balance sheets with a renewed focus on cash flows as well as profitability, suggesting that the new cycle for the sector could be asymmetrically beneficial to these companies.
Franklin Templeton Mutual Fund and L&T Mutual Fund are perhaps counting on the same as they hold the highest exposure to the sector among the top 20 MFs. Franklin Templeton has so far been the biggest beneficiary as it raised its exposure to 2.7 per cent of its equity corpus in August from 1.9 per cent in December.
“I think broadly these stocks are looking good and eventually the bull run in the larger real estate company will percolate down to some of the smaller players as well and the entire sector and the industry will suddenly start outperforming,” Mehta said.
