CapitalMarket.com - Realty stocks advance on rate cut hopes
Hot Pursuit Friday, June 08, 2012 15:17 Hrs IST

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Realty stocks advance on rate cut hopes

Shares of eight real estate firms rose by 0.33% to 6.25% at 15:14 IST on BSE in anticipation of interest rate cut by the Reserve Bank of India to prop up slowing economy.

Oberoi Realty (up 2.03%), Orbit Corporation (up 3.94%), HDIL (up 6.25%), Unitech (up 2.24%), Indiabulls Real Estate (up 0.78%), DLF (up 1.16%), Sobha Developers (up 1.89%) and Godrej Properties (up 0.33%), edged higher.

The BSE Realty index was up 1.41% at 1,651.17. It outperformed the Sensex, which was up 0.49% at 16,731.29

The BSE Realty index had outperformed the market over the past one month until 7 June 2012, falling 0.66% compared with the Sensex's 1.56% fall. The index, however, underperformed the market in past one quarter, sliding 8.41% as against 2.90% fall in the Sensex.

The Reserve Bank of India (RBI) hinted at cutting the key policy rates in the upcoming mid-quarter monetary policy review on 18 June 2012. Realty shares are interest rate sensitive and hence lower interest rates may help revive demand for properties. Purchases of both residential and commercial property are largely driven by finance.

The RBI deputy governor, Subir Gokarn was quoted as saying on Monday, 4 June 2012 that growth is somewhat lower than expectations and that may have positive, moderating impact on core inflation. Oil prices too have come off somewhat more than expected. He added that those are the two factors that suggest more room for monetary policy easing.

Data released by the government last week showed India's economy grew 5.3% in Q4 March 2012, its slowest pace of expansion in nearly a decade. The RBI had maintained a high-interest rate stance as the headline inflation of India remained high.

After a gap of 20-months, the central bank slashed key lending rates by a sharp 0.50% (50 basis points) during its annual policy announcement in April 2012. At that time, the RBI had said that there was limited room for a further rate cut. However, Gokarn's comment comes amidst a depreciating rupee and a slower-than-expected growth rate of the country.

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