As per the national accounts statistics 2022, nominal gross fixed capital formation grew at a CAGR of 6.5% since FY12 to reach 52.6 trillion rupees in FY21. It, however, underperformed nominal GDP which grew at a CAGR of 9.5% over the same period.
Household sector and private corporates contributed 74% to gross fixed capital formation in FY21, although down sharply by 500 basis points since FY12 when they contributed 79%.
Within this, the contribution of real estate, including dwellings and other structures, to GFCF fell drastically by 1,200 bps from 37.4% in FY12 to 25.4% in FY21.
However, after the decadal downtrend, rising animal spirits towards investments are visible within private corporates in industrial sectors and household real estate.
However, the recovery trends are mixed across segments as the housing segment is seeing robust demand while commercial real estate is still lagging.
That said, high input costs amid the ongoing Ukraine-Russia war is a near-term overhang.
According to ‘National Price Rise Impact Study 2022’ by CREDAI, nearly 40% of real estate developers feel that they will not be able to deliver their projects if the government did not take steps to provide relief from a sharp hike in the prices of construction materials.
The survey also revealed that there is a direct increase of approximately 20 per cent in construction costs, which will have a direct bearing on the real estate prices.
Against this backdrop, how should investors play the theme?
Among individual stocks, JM Financial prefers DLF, Macrotech Developers and Prestige Estates
While, Sharekhan likes Mahindra Lifespaces, DLF, Oberoi Realty, Prestige Estates, Macrotech Developers, Puravankara, and Arihant Superstructures.
Analysts say investors could also play the Real Estate theme by investing in allied sectors such as home improvement, home utilities, construction material, related-commodities and logistics.
On Wednesday, the Nifty Realty Index ended 0.5% up as against a percent gain in the benchmark indices. On a year-to-date basis, though, the index has shed 7% relative to benchmarks' 1% dip.
Meanwhile, stock-specific action amid Q4 earnings, weekly F&O expiry, and global cues will guide the markets today.