Real Estate again taking the lead

March 18: The Indian markets shed a part of their gains during the final hour of trade on the back of profit booking. However, they ended the day well above yesterday’s closing level. The BSE-Sensex closed with gains of around 110 points, while the NSE-Nifty closed higher by 40 points. Stocks from the mid-cap and small-cap indices ended the day in the green as well. Buying activity was witnessed in stocks across sectors, with realty and metal leading the pack of gainers. However, the BSE-FMCG Index ended the day in the red.

Most other Asian markets closed on a firm note. The European indices are currently trading mixed. Rupee was trading at 51.34 against the US dollar at the time of writing. Real estate stocks ended the day on a firm note led by Akruti City, Mahindra Lifespace, DLF and HDIL. Stocks from the real estate sector have been amongst the worst performers in the past one year. This is mainly on account of lower demand and liquidity issues. In fact, until last week, the BSE Realty Index had fallen by nearly 46% since the beginning of 2009. However, the index has been amongst the top gainers in the past few trading sessions. The reason behind the same is price cuts in the range of nearly 30% to 40% announced by real estate players. While this move may impact their margins significantly, it will benefit the companies by reducing their inventory, bringing about much needed liquidity. It may be noted that a handful of realty players are sitting on a stock pile of projects that were launched a year back.

Auto stocks ended the day on a firm note led by Bajaj Auto and Ashok Leyland. As per a leading business daily, M&M has recently inaugurated its defence auto facility at Faridabad. This facility has the capability to produce nearly 200 specialised vehicles, which will be used by the armed forces, paramilitary and the police. However, it plans to increase the capacity to 350 units in the next fiscal. This facility will also produce bullet-proof versions of its multi-utility vehicles such as Scorpio and Bolero. With sales of the mainstream auto market drying up, companies such as M&M, which have a certain amount of exposure in the defense area, have been focusing on increasing defence supplies.

As per a report issued by McKinsey & Company, India is likely to face a shortfall of nearly US$ 150 bn to US$ 190 bn in funding its infrastructure projects in the current five-year plan period (FY07 to FY12). The reason behind this view is the global economic slowdown and rising interest rates, which have made project financing expensive and financial closure more difficult. It may be noted that the Planning Commission had earlier envisaged infrastructure investments to the tune of US$ 500 bn. Of this, nearly one-fourth was to be spent by the private sector and the balance by the public sector.
Credit: Seekingalpha