Mutual funds wary of realty, foresee more pain in short term

Real estate stocks are likely to be further battered as property developers witness slowdown in demand amid tight inter-bank liquidity and prevailing high interest rates, domestic fund managers said.

Ajay Argal, co-head, equities, Birla Sun Life Mutual Fund, said, “The prices would correct further. Developers are faced with the problem of raising money and selling what has been built.”

“High interest rates in the economy is affecting demand,” Argal added. Since January 1, the BSE Realty Index has dropped a whopping 73.71 per cent. “The sector is due for more correction,” said the chief executive officer of a private mutual fund.

In an effort to tame inflation, the Reserve Bank of India has already resorted to a series of rate hikes. So far this calendar year, the central bank has hiked banks’ cash reserve ratio 150 basis points and its repo tender rate 175 bps to 9 per cent each.