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Booming realty shares in India yet to win over BNP Paribas Fund

LiveMint logoLiveMint 09-05-2017 Nupur Acharya

New Delhi: Property developers have beaten every industry group on India’s benchmark equity index this year, but BNP Paribas Asset Management India Pvt. Ltd isn’t impressed.

A gauge of realty stocks has soared 62% since 1 January, 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 in an interview. “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 and rapid urbanization in one of the world’s fastest-growing economies along with the government-led housing programs should drive housing finance and allied businesses, Lakshmanan said.

“Purchasing power of the average household has been increasing, and to that extent, discretionary spend is likely to pick up,” he said. The broadening of the government’s new housing policy to include middle income group “is a big move and can bring in demand for affordable housing,” he said.

Makers of building materials including Asian Paints Ltd and UltraTech Cements Ltd made up 5.2% of BNP Paribas Equity Fund’s Rs1,170-crore assets on 31 March, according to data compiled by Bloomberg. The fund has returned 23% this year, beating 95% of its peers. The BNP Paribas Mid Cap Fund held shares of companies including Repco Home Finance Ltd and Shankara Building Products Ltd at the end of March, the data show.

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

Recent policy steps for the industry include:

The measures have helped buoy sentiment. Home sales, which slumped in the wake of the cash ban, have since shown signs of a recovery, according to PropTiger.com, an Indian real estate advisory firm. Sales across nine cities rose 19% in the March quarter, rebounding from a 20% slump in the previous three months, the data showed.

Still, the rally that has sent the S&P BSE Realty Index’s valuation to the highest level since 2009 is untenable, said Lakshmanan. “At this time, nothing in this space looks too attractive,” he said. Bloomberg

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