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Funds Favour Realty Stocks

Forgetting the crash of 2008, fund industry is ramping up exposure to realty stocks

After getting burned by their real estate stock holdings during last year’s bear hug, fund managers are again making an entry into the sector in a big way.

What may have persuaded them is the fact that realty stocks have been one of the best-performing on the stock markets since the market rally started some 5 months ago.

For instance, while Sensex gained 84 per cent from March 9 to August 12, the Bombay Stock Exchange realty index has gained by 189 per cent.

The rising trend has convinced fund managers about the bona fides, and the comprehensive outreach, of the market rally and they are in a rush to ramp up their holdings, believing that the pent-up demand across India will keep the realty companies as well as their stocks on a high. That some of the realty companies have been able to restructure their huge debt, raise vast amounts of resources through Qualified Institutional Placements (QIPs) and also cleanse their balance-sheets are adding to the feelgood factor.

As such, we see that over the last six months, from January to June (the last quarter of the FY09, and first quarter of FY10), barring a hiccup in the middle, has seen mutual funds (open-end, diversified equity) increase their exposure to real estate stocks. Overall, the figures indicate that from Rs 171 crore of investments by funds in realty stocks at the end of December 2008, fell to Rs 124.81 at the end of March 2009, but then sharply ran up to a mammoth Rs 1,113.26 crore at the end of June – by July this has risen to as much as Rs 1,421.09 crore.

That this was not really just the result of a rise in the value of shares is clear from the fact that the exposure of mutual funds in stocks increased. From December to March, funds increased their stake in 4 out of 16 companies that they were invested in. From March to July, they increased stake in 9 out of the 12 companies that they were invested in.

The share of the real estate exposure in the total assets under management of mutual funds in December 2008 was 0.32 per cent, in March 2009 it was 0.29 per cent and in July it has jumped to 2.06 per cent.

While there is certainly lots of mutual fund interest in realty stocks, yet there are few takers for real estate debt at the moment, thereby depriving realty companies of the much-needed cash, but that may well change as the companies increase their performance and scrip figures.

However, the issue may well rest on the other side: Business Standard quoted Ashish Nigam, head, fixed income, Religare Mutual Fund, “The real estate sector has been stressed for cash. Mutual funds are in general cautious over exposure to the real estate sector. Repayment is an issue in debt investment in real estate companies. We do not have any debt exposure to real estate.”

While for the moment fund managers are busy as bees loading up on realty, yet the jury is still out on whether they will get much honey for their efforts. Something that would concern investors, especially after what happened last year, when funds were caught overexposed to the sector.


Mutual Fund Holdings
    Shares (Lakhs)      
Company  Jul-09  Mar-09  Dec-08  Price  Returns (%) *
Orbit Corporation 14.91 5.65 5.73 203.2 393.20
Housing Development & Infra 53.81 11.14 10.68 276.9 336.41
Peninsula Land - - 1.12 75.6 317.68
Unitech 481.78 11.42 43.68 88.35 256.25
Mahindra Lifespace Developers 29.71 14.26 13.49 305.9 254.46
Parsvnath Developers 1.01 - 0.61 109.45 249.68
J M C Projects (India) 6.72 6.70 6.86 160.25 211.17
Anant Raj Inds. 3.47 - - 125.9 194.50
Pratibha Industries 13.04 14.88 16.45 161.7 177.12
Brigade Enterprises 8.04 2.51 2.49 80.35 176.12
Indiabulls Real Estate 149.93 36.20 2.53 231 175.66
Ansal Properties & Infrastruture - 4.14 14.50 60.45 173.53
DLF 45.12 14.44 23.16 373.1 169.00
Sobha Developers 44.78 - - 209 167.95
Phoenix Mills 23.56 14.67 15.51 129.8 155.76
Puravankara Projects 0.66 - 0.27 86.3 147.99
D S Kulkarni Developers 7.44 7.69 7.70 41.25 144.08
Ackruti City - - 1.25 505.75 -49.16
* Returns from March 09, 2009 to August 12, 2009