Booming Indian realty shares don’t impress BNP Paribas

mumbai — Property developers have beaten every industry group on India’s benchmark equity index this year, but BNP Paribas Asset Management India isn’t impressed.

A gauge of realty stocks has soared 62 per cent since January 1, almost five times the climb in the S&P BSE Sensex, as the government took steps to bolster the industry that was one of the worst hit by its cash ban in November.

“They have moved up sharply, but we have our reservations,” Karthikraj Lakshmanan, a senior fund manager of equities at BNP Paribas, said. “Our focus is on whether a developer has been able to generate cash flow and deleverage. That we haven’t seen in a meaningful way.”

The money manager is instead bullish on companies that produce supplies that go into making homes such as cement, paints and tiles and on mortgage lenders. Rising incomes, rapid urbanisation and the government’s push to bring homes to the country’s 1.3 billion people will unleash a $1.3 trillion wave of investment in housing over the next seven years, according to CLSA India.

Makers of building materials including Asian Paints and UltraTech Cements made up 5.2 per cent of BNP Paribas Equity Fund’s ₹11.7 billion assets on March 31, according to data compiled by Bloomberg. The fund has returned 23 per cent this year, beating 95 per cent of its peers. The BNP Paribas Mid Cap Fund held shares of companies including Repco Home Finance and Shankara Building Products at the end of March, the data show.

UltraTech Cement has rallied 36 per cent this year, while Asian Paints has risen 31 per cent and Repco has climbed 34 per cent.

Still, the rally that has sent the S&P BSE Realty Index’s valuation to the highest level since 2009 is untenable, said Lakshmanan. The gauge gained 1.8 per cent at 9.33am, extending Monday’s 4.5 per cent climb at 9.33am in Mumbai.

“At this time, nothing in this space looks too attractive,” he said. — Bloomberg