Booming realty shares in India yet to win over BNP Paribas

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

 

Bloomberg

Property developers have beaten every industry group on India’s benchmark equity index this year, but BNP Paribas Asset Management India Pvt. isn’t impressed.
A gauge of realty stocks has soared 62 percent 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 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, rapid urbanization 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 Pvt.
“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 percent of BNP Paribas Equity Fund’s 11.7-billion rupee assets on March 31, according to data compiled by Bloomberg. The fund has returned 23 percent this year, beating 95 percent 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 percent this year, while Asian Paints has risen 31 percent and Repco has climbed 34 percent. Recent policy steps for the industry include: The government in February granted infrastructure status to affordable housing, adding to the cheaper home loans announced on New Year’s eve. Developers of such projects will get subsidies, tax breaks and institutional funding.
In March, the affordable housing policy was extended to households with income of up to 1.8 million rupees. Loans under this program enjoy rebates and interest waivers. Central bank in April allowed banks to invest in real-estate investment trusts. Laws to tackle chronic building delays and protect the rights of home buyers came into force May 1.
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 percent in the March quarter, rebounding from a 20 percent slump in the previous three months, the data showed.

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