Mumbai: With inflation worries, rising interest rates and the consequent de-rating of land value puncturing real-estate stocks, companies that plan to tap the capital markets for funds to the tune of Rs11,970 crore may see a stone-cold response from investors.
“The sector is going through a turmoil. Obviously, under the circumstances they will have to wait for better times. We are not worried about their pricing, but rather about some of the deals they are involved in,” says a merchant banker for one of the prospective IPOs (initial public offerings).
“There is a perceived impact of liquidity squeeze affecting the sector,” says Alok Agarwal, senior analyst with Motilal Oswal. It remains to be seen how much the market supports the pricing of these IPOs, he adds.
Seven real-estate development firms, with issue sizes ranging from Rs70 crore to the much-awaited Rs8,000 crore IPO of DLF Ltd, have filed their prospectus with market regulator Sebi. “Little less aggression in IPO pricing is required to make the shares look attractive,” says an analyst.
However, the DLF issue, along with others, will face rough weather with the correction in equity markets exacerbating the fall of real-estate stocks. Shares of major real-estate companies have fallen by 12.95% to 32.74% in a month—Parsvnath fell 32.74% and Unitech 24.73%.
While listed stocks have already fallen, those that are planning to tap the market are eagerly waiting to see how the DLF issue goes. “We are waiting for a player like DLF to come and set a benchmark for the real-estate stocks,” said the managing director of a construction firm.
Real-estate stocks are valued on the basis of their land bank. Though the net property value will be a crucial factor for prospective IPOs, the crux would be on the ability of the company to deliver on its project promises, says an analyst. “It is the frenzy about the sector that made investors rush to put their money in high-priced IPOs,” he adds.