The Hindu Business Line : Markets likely to remain volatile

Chicago real estate magnate turned media baron Sam Zell is preparing to have a real taste of Indian real estate market. His entrepreneurial investment firm Equity Group Investments LLC is reported to have been making a blue print for a large-scale low-cost housing business model for India.

Local and global birds are slowly homing in on real estate market here for its extraordinary returns - not less than 30 per cent annualised. Yet, considering the size and growth potential, organised investment flow to the sector is still very small. Money managers feel that lack of transparency, absence of an apex regulatory mechanism, multiple value assessment authorities and micro-level bottlenecks have kept the sector in grey shadows - euphemistically told to be "un-organised".

The tempo of home loan off take cooled off a bit in the past few months after the last rate escalation and real estate prices appear be undergoing a re-adjustment. But, as broad demand lags behind overall supply the sector has been witnessing lopsided price discovery and bloated growth, backed largely by a grey market and sets of local operators.

Real test

The booming stock market did not fail to notice the high rise growth of its cousin. But it has been assigning valuations to the stocks in the fledgling sector with a dollop of discount, as corporate governance practiced by these companies remained a suspect. Many of the real estate/construction stocks ruled below their listing prices.

Investment strategists in general appear to disagree with the assets/projects valuations quoted by these companies and doubt the integrity of their balance sheets.

This week, capital market would face a twin challenge of assigning a fair value to the sector as a whole and apportioning liquidity as the jumbo offering from arguably country's largest real estate player (in terms of constructed area) hits the Street on Monday.

In the countdown to the issue, certain market players added premiums to these stocks; even some perennially illiquid stock have begun to float.

However, short-term jigs are often fraught with risk of un-sustainability, a number serious investors including fund managers suggest. Incidentally, an IPO racket at Rajkot is learnt to have become active recently.

Demand slowdown?

Last week, early signs of a demand slowdown in interest sensitive sectors pushed the indices down. Bankers have, of late, indicated slower off take of not only home loans but also of car finance. But confirmation of it came in from some segments four and two-wheeler industry last week.

Cement and steel manufactures also have begun allowing more "selective" trade discounts in some pockets. But analysts seem to suggest that it is still too early, too cyclical, too regional or seasonal.

In this backdrop, the stock market reacted more to the global concern over hardening interest and inflation rates when Indian inflationary pressure seemed to ease and the RBI turned flexible in its stance by mopping up dollar after a relatively long period of abstinence.

Intermediate consolidation

This week market is likely to remain volatile, but a little circumspect in handling economic signals and overseas clues. It does not seem to be yet psychologically ready for a large-scale profit-booking and a sharp correction.

Dalal Street may take some more time to make a call on the corporate earnings growth in the first 2 quarters and the impact of monsoon on the economy. The week-on-week movement of the Sensex may be bound by a range of 500 points either way.

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