The RBI announcement of reduced risk weightage for sub-Rs 20 lakh loans provided a booster shot to almost all realty stocks, resulting in a sharp upswing in prices. Real estate developers such as Ansal, Mahindra Gesco, Parsvnath, Sobha and DS Kulkarni saw their stock prices move up by 4-9%. Construction companies with exposure to real estate, such as Mumbai-based Hindustan Construction, Hyderabad-based IVRCL and Nagarjuna Construction also saw stock prices move up 7-7.5% each.

The primary impact of the measure is that it allows banks to further extend their exposure to retail loans in the housing sector without having to raise fresh capital. Therefore, real estate developers selling properties in the sub-Rs 30 lakh range are likely to be the biggest gainers from the measure.

This size rules out most of the housing development in Mumbai and Delhi, and the centrally located areas of most other cities. Most of the listed real estate companies in India, with a few exceptions, currently get the bulk of their business either from Mumbai or Delhi. Hence, the jump in stock prices could be more of a relief that RBI is not going to tighten the liquidity screws on the sector any further.
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