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Ground Realities

Despite all their wariness, fund managers do dabble in real estate stocks. Here are their buying patterns in notable real estate stocks over the past one year

When we talk to fund managers, we often ask them their views on real estate stocks. The response touted by all is similar with a hint of caution being very apparent.

None of them will go to the extreme by saying that property does not have a future. In fact, their long-term perception is bullish. Though the boom began two years ago, it is still at an early stage and given the high demand-low supply scenario, there is ample room for growth. They even acknowledge that though the sector is extremely unorganized, that is slowly changing. Where the wariness sets in is in valuations. Being a new sector, like aviation, analysts are still trying to get a grip on how these stocks should be evaluated. And till that is done, they prefer staying away. But despite spewing the politically correct and PR-approved answers, reality throws up a different image. Fund managers have dabbled in real estate stocks despite all their wariness. In fact, the very ones we spoke to have entered and exited real estate stocks. And, when questioned, the answer is standard: “We cannot comment on individual stocks.”

We picked up a few stocks and looked at funds buying it over the past one year from May 2006. We avoided looking at quasi-real estate stocks (retail, hotels), real estate financiers (banks, housing finance companies), construction companies and indirect plays like Bombay Dyeing that hold large tracks of real estate and could unlock value by selling or developing it. Instead, we zeroed in on a few real estate stocks like Akruti Nirman, Anant Raj Industries, Parsvnath Developers, Sobha Developers, India Bulls Real Estate, Ansal Properties, Ansal Housing Constructions, Orbit Corporation, Mahindra Gesco, Lok Housing, Peninsula Land and Unitech.

The chosen and the rejected
Where stocks are concerned, there are a few preferred and few shunned.

Anant Raj Industries stands out because all funds avoided it except Reliance MIP. Ditto for Lok Housing where only two funds of Sundaram BNP Mutual Fund were invested. Both these scrips have been sold and are no longer being held by any fund. Parsvnath Developers appears to have been a favourite.

Though 82 schemes invested in it over the past one year, only 14 have held on to it. Ansal Properties may not have been that popular but seems to have a better track record: 59 schemes bought it and 26 still hold on to it.

The buyers
Notably absent from the list is Fidelity.

Reliance has broadly stayed away from the real estate lure. The exceptions: Reliance Equity Opportunities invested in India Bulls Real Estate for only a month (April 2007) and Reliance MIP in Anant Raj Industries (exited).Tata Mutual Fund considered Ansal Housing, Mahindra Gesco and Unitech and has exited from all of them.

DSP ML selectively considered four stocks: India Bulls, Ansal Properties, Mahindra Gesco and Unitech. But a number of their schemes - Balanced, Equity Fund, Opportunities, Small and Mid Cap Regular, T.I.G.E.R, Top 100 Equity Regular - bought and sold or still hold on to these stocks.

If Sobha Developers and Parsvnath Developers were avoided by DSP ML, they were sought after by Templeton before being ejected from their portfolios too. Templeton also invested in Mahindra Gesco and Ansal Porperties. Bluechip, Flexi Cap, Opportunities, Prima, Prima Plus, Balanced, MIP and Taxshield were the Templeton schemes that at one time or the other succumbed to the real estate pull. J M Mutual Fund considered a number of real estate stocks, some of which are not too popular with other funds. Akruti Nirma, Mahindra Gesco and Unitech are no longer in the portfolios. Orbit Corporation, Peninsula Land, Ansal Properties, Parsvanath Developers and Sobha Developers are still held on. Five of HDFC schemes invested in (and some continue to be) Ansal Housing, Ansal Properties, Parsvnath and Sobha Developers. ICICI Prudential still holds Parsvnath and Orbit Corporation. Kotak MF invested in six stocks but holds just three now. The mutual fund portfolio data for all the real estate stocks is from May 2006 to May 2007. The list of real estate stocks is not exhaustive.

The DLF lure
The latest and largest real estate stock to be listed was DLF Ltd. With an issue price of Rs 525, on the very first day of its trading, the stock rose to Rs 714 before closing at Rs 570. With a market capitalisation of Rs 96,287 crore, DLF joins the top 10 companies trading on the Indian stock exchanges. See table (The DLF Lure) for the funds invested in DLF. Going by the track record, DSPML clearly favours real estate companies.

The DLF Lure
  Percentage      Amount   
Scheme  of Net Assets   Invested (Rs cr)
DSPML Opportunities  2.91    42.49  
DSPML Small And Mid Cap Inst  2.97    43.40  
DSPML Small And Mid Cap Reg  2.97    43.40  
DSPML T.I.G.E.R. Reg  2.78    49.82  
DSPML Tax Saver  2.82    4.39  
Kotak Emerging Equity  1.69    4.68  
Kotak Lifestyle  1.69    5.54  
Kotak Opportunities  1.77    3.47  
Kotak Tax Saver  1.63    4.22  
LICMF Equity  2.16    1.93  
Lotus India Tax Plan  6.13    3.28  
Reliance Equity Opportunities  1.01    26.96  
Reliance Long Term Equity  1.15    26.96  
SBI Bluechip  0.23    3.77