Shares of India’s biggest real estate developer, DLF Ltd, tumbled the most in more than three months after Macquarie Research said the company’s proposed share buy-back would divert funds needed for developing projects.
DLF dropped 10%, the most since 13 March, to Rs382.85 at the close of Mumbai trading. The developer on Wednesday had its biggest gain since it began trading a year ago after it said its board would consider the buy-back plan on 10 July.
The company aims to repurchase shares that slipped below the initial public offering (IPO) price of Rs525 per share, less than a year after the IPO. Borrowing costs at a six-and-a-half-year high and inflated property prices are deterring homebuyers, leading to a drop in property stocks.
The Bombay Stock Exchange’s realty index has shed 66% this year.
“In the current scenario of tight liquidity and a cash crunch for most developers, we believe that DLF could put the capital to better use by investing in the business itself,” Unmesh Sharma, an analyst at Macquarie, wrote in a note to clients. The developer would be allowed to buy-back as much as 2% of its shares under current rules, and would require Rs1,500 crore, he said.
The central bank last month raised its benchmark interest rate in by the most since 2000 after inflation accelerated to a 13-year high. The inflation rate was 11.42% for the week ended 14 June. Property prices may drop as much as 15% in the coming months, Keki Mistry, vice-chairman of Housing Development Finance Corp. Ltd, India’s largest provider of home loans, said last week. Gagan Banga, chief executive of Indiabulls Financial Services Ltd, said prices may fall as much as 20%.