Realty rout! Index tanks 4.5% as rate hike bets spark risk-off mood

Lodha Developers was the top laggard in the Nifty Realty pack following a 7.56 per cent decline. Godrej Properties followed close behind as it declined 7.42 per cent.

Nifty realty index: The real estate stocks witnessed significant selling pressure on Friday as they tumbled up to 7 per cent in intraday deals as rate hike bets gathered steam following inflation concerns amid rising crude oil prices and spike in bond yields.

 

The Nifty Realty index tanked 4.50 per cent to the day's low of 832.8 on the National Stock Exchange (NSE), hitting an over two-month low, as all constituents traded in the red.

 

 Lodha Developers was the top laggard following a 7.56 per cent decline on intraday basis. Godrej Properties followed close behind as it declined 7.42 per cent. Prestige, AB Realty and Oberoi Realty fell 4-5 per cent each. Meanwhile, other stocks such as DLF (down 3.94 per cent), Brigade Enterprises (down 3.5 per cent), Phenonix Mills (down 3.4 per cent), Anant Raj (down 2.9 per cent) and Sobha (down 2.7 per cent) traded with deep cuts.

 

Why are realty stocks falling?

The realty pack is a rate-sensitive sector and higher rates are a dampener for the sector.

 

Earlier today, the Indian bond yields spiked past the 7 per cent mark as a double whammy ‌of ​rising ​oil and US yields sapped investor appetite. Crude oil prices are currently heading towards $110 per barrel and creating pressure on inflation through rising bond yields.

 

"Central banks may have to take a stance on controlling inflation, even though the current inflationary pressure is being driven by crude prices. Given the high volatility in crude prices, any rate hike or higher interest rates, along with rising bond yields, would definitely create pressure on interest-rate-sensitive sectors. Realty is one of the key rate-sensitive sectors as well," said Kranthi Bathini of Wealthmills Securities.

 

According to the expert, a key consideration remains how long do oil prices remain elevated. Over the last six months, oil prices have touched $75 per barrel and also $122 per barrel amid escalation and truce talks surrounding the West Asia war.

 

"In the short term, oil prices are looking very firm. But if crude prices cool off over the longer term, the inflationary situation can also ease," Bathini said.

 

Meanwhile, the Federal Reserve is under severe pressure, with a dichotomy between dovish and hawkish commentary. At one end, the Trump administration has been putting pressure on the Fed to reduce interest rates. On the other, data and the Federal Reserve's FOMC members' hawkish commentary point to rate hike bets.

 

Over the long term, Bathini said, interest rates are expected to soften. "As far as Indian real estate is concerned, there is strong demand despite the headwinds we have seen. So, investors can consider buying realty stocks on dips in a staggered manner."

 

Other rate-sensitive sectors like auto and banks also traded with steep losses. Nifty Bank and Nifty Auto fell over 1 per cent each.

 

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