 "Small, mid-sized real estate players may outperform: Emkay; check top bets")
Real estate stocks to buy: Backed by a disciplined housing cycle, strengthening balance sheets, and sustained housing demand that favours well-capitalised, branded developers, domestic brokerage Emkay Global Financial Services has initiated coverage on the real estate sector.
India's housing upcycle, Emkay believes, has entered a more mature and disciplined phase compared with earlier cycles. Over the past decade, listed and organised developers have steadily gained market share, doubling their share of residential pre-sales to around 15 per cent as of financial year 2024-25 (FY25).
This structural shift, driven partly by regulatory reforms such as RERA, has improved execution standards and strengthened buyer confidence, the brokerage said.
In this backdrop, Emkay Global thinks small and medium (SMID) real estate players could likely outperform with 25-35 per cent pre-sales CAGR over FY25-28, given a favorable base and ability to gain market share. It, thus, has assigned a 'Buy' rating on Lodha Developers, Sunteck Realty, and Arvind Smartspaces, an 'Add' rating on DLF, and a 'Reduce' rating on Oberoi Realty.
Among these, Lodha is its preferred large-cap play, while Sunteck Realty, and Arvind Smartspaces stand out in the mid-sized segment due to stronger growth visibility and attractive valuations.
Real estate sector outlook India: Housing demand trends
As per Emkay Global analysts, India's housing demand is expected to remain resilient in the coming years, supported by a preference for home ownership, stable affordability levels across major cities, and gradually easing interest rates. Even as property prices have risen over the past few years, the brokerage believes affordability metrics remain comfortable in most large urban markets, suggesting room for demand to sustain, especially in the mid-income and premium segments.
"We have witnessed disciplined demand-supply dynamics in the current housing upcycle. Absorption has been mostly ahead of new launches, which has led to a significant decline in unsold inventory in the top-8 cities during this period. Premiumisation has continued. Even with the ongoing trend of preference for larger spaces, we have still not reached the level of 1,100-1,350 sq ft (weighted average size of a unit sold) seen in the top-8 cities over FY09-15, suggesting headroom for growth," it said. ALSO READ | Nomura backs Indian AMCs amid retail surge; Nippon Life, HDFC AMC top picks
Home buyers prefer 'branded players'
Homebuyers, according to Emkay Global, are more confident in purchasing under-construction inventory, now, following RERA implementation, mainly from branded/well known developers.
The number of units absorbed from new launches, it said, has been rising since FY17, which affirms increasing consumer comfort. Also, the share of 'absorption from new launches' in the overall absorption in the top-8 cities has increased from 26 per cent in FY21 to 38 per cent in FY25.
This confidence in Branded Developers stems from the sharp improvement in balance sheets across the sector.
"The major listed developers (operational since FY09) had a 7-per cent market share in top-8 cities at the peak of the earlier cycle in FY11. This has doubled to 15 per cent as of FY25. Also, net debt of prudent players in the listed space has reduced by nearly 65 per cent as of FY25, from the peak in FY17. Further, developers added more projects that were asset-light in nature, which enabled scalability without straining the balance sheet," Emkay Global said.
That apart, the brokerage highlighted that smaller players have taken charge of the real estate sector growth post-FY23. It also believes that mid-size players, that reported pre-sales less than ₹10,000 crore as of FY25, have a healthy launch pipeline and/or intend to continue/step-up business development activity over the medium term will continue to see higher-than-industry average growth due to a favorable base. It likes Arvind Smartspaces, Sunteck Realty, AB Real Estate, Puravankara, and Oberoi Realty from the segment.
"Larger players like Lodha Developers, meanwhile, have forayed in new regions and continue to explore more regions may unlock growth potential and remain well placed to outperform the peers over the medium term," it said.
Taking cue from the business development activity and the medium-term launch plans of such companies, we anticipate pre-sales growth as well as market share gains to continue over the medium-term, Emkay pointed out. ALSO READ | Nifty50 to hit 29,300 by end-2026? Nomura lists top 20 stock picks
Low inventory overhang
Emkay Global analysts said the current housing upcycle offers ample scope for new project launches. Inventory overhang in the top cities, it said, is at multi-year lows, while the share of sales coming from new launches has risen sharply. This creates a favourable environment for developers with a strong pipeline of launch-ready projects, particularly those with established brands that can attract buyers early in the construction cycle.
" We expect Arvind Smartspaces and Sunteck to see a higher 25-35 per cent pre-sales CAGR, and Oberoi Realty to log 18 per cent pre-sales CAGR during FY25-28E. Further, among the larger pack, Lodha is likely to see 16 per cent pre-sales CAGR despite a relatively higher base, while DLF is likely to see a muted 6 per cent pre-sales CAGR over the same period," it said.
Real estate stocks to buy
Valuation-wise, Sunteck Realty and Arvind Smartspaces trade at a discount to their net asset values, while Oberoi Realty is fairly priced with much of its near-term upside already captured in the stock price.
"We value DLF (ADD) at its NAV (0 per cent premium; muted growth, weak diversification). Oberoi (REDUCE), valued at 50 per cent NAV premium, is already trading at premium valuations," it added.