Nifty Realty Index: What does the street make of its best day in two years?

Sobha released its December quarter pre-sales figures on Thursday night.

The company achieved its highest-ever quarterly sales value of ₹1,952 crore, a growth of 37% over the year-ago quarter and 13.2% from the September quarter.

Average price realisation also improved by 14.8% sequentially to ₹11,732 per square feet. The company's core market of Bengaluru saw its highest ever quarterly sales. Cash flow during the quarter remained strong, resulting in further reduction to the company's net debt.

Housing sales in 2023 had hit a new peak, according to an ANAROCK report, where the top seven cities registered a 31% growth compared to last year. While housing sales in Mumbai grew by 40% year-on-year, those in Bengaluru, Hyderabad and Chennai grew between 29% and 34%.

Even before the rally on Thursday, most stocks on the Realty index were trading at a significant premium to their Net Asset Value as of December 15.

The realty index faced consistent resistance at its 50-Day Moving Average since the start of 2023. However, it managed to break above that key level on April 6 last year and since then, the index has doubled in value. Even as the index doubled, some of its constituents like Prestige Estates tripled, while those like DLF and Godrej Properties too gained as much as 100% since April last year.

The analyst community has also been bullish on the real estate stocks with minimal "sell" recommendations. Stocks like Sobha, are tracked by 17 analysts, all of whom have a "buy" recommendation on the stock.

Post this one-way rally, most of the stocks on the real estate index are trading well above their consensus price targets, which are now implying that the stocks have the potential to fall as much as 25% from current levels, a number that will only rise if the rally continues.

"This upmove is going to continue for much longer because like when people make money in the markets, the first thing they do is clearly buy, like real estate," said Independent Market Expert Ambareesh Baliga. "if you look at the balance sheet, the difference between then and now is you hardly have any stretched balance sheets. So I think there's still a decent upside and I would say and then look at stocks like Godrej Properties, Sobha, which has gone up can still move further," he added.

Deven Choksey of DRChoksey Finserv said that there is no major change in fundamentals of these stocks that have taken place either on Wednesday or Thursday and things remain the same on ground.

"However, the larger issue remains here that market whenever it goes down to any kind of a price correction there is an immediate amount of pool of money which is coming in ready for investing into the market because a significantly large sum of money waiting in the pipeline for investment. So, any price correction is taken as an opportunity by most of the investors," he said.