IT hiring, jump in salary levels to boost real estate sector in top cities. Stocks to bet on

Real estate stocks have been buzzing since the past few sessions amid improved outlook and expectations of listed firms emerging as beneficiaries as record low interest rates and an economic recovery from the covid pandemic fuel demand from an increasingly affluent middle class.

The BSE Realty Index has surged nearly 10% in past five sessions and is up over 35% this year (year-to-date). Nifty realty index has broken out 10 years of consolidation and there are lots of positive triggers for the sector to outperform, say analysts. 

Low interest rates, government support, and consolidation in the industry after Rera are acting as key catalysts for a turnaround in this sector. Further, market observers also expect unlocking theme, IT hiring and increase in salary levels to act as triggers for the residential space.

“IT sector is witnessing strong growth momentum that is creating new jobs in the economy whereas the salary levels are also on the rise in this sector. The rise in salary level, work from culture along with other tailwinds discussed above are helping a turnaround in residential space. The economy is witnessing a strong recovery and the unlocking theme is getting momentum whereas work from culture can't last forever, therefore, I believe commercial real estate will also catch up momentum sooner or later,” said Santosh Meena, Head of Research, Swastika Investmart.

Analysts believe that the bullish momentum in the real estate space is just a start of a fresh bull run after a decade of underperformance. Listed players have gained market share in new launches in the last 2-3 years, and the trend is expected to continue amid expectations of residential market doing well in near future.

"Majority of Sobha's residential pre-sales comes from Bangalore market which is one of the IT hubs in India. We expect new hiring by IT industry will increase residential demand in Bangalore, Pune and Chennai. We have seen a strong consolidation in the top-10 cities in India towards organized players post Demon, RERA, IL&FS crisis," said Yash Gupta, Equity Research Analyst, Angel Broking.

India’s property market is rebounding after being in a down cycle for the last six years as a series of headwinds ranging from the pandemic, a bad-loan crisis and a surprise 2016 cash ban hurt demand for new houses and apartments.

“Sobha is our top pick on the back of its diversified portfolio and greater visibility of growth,” Santosh Meena added. He expects Bangalore-based Brigade Enterprises may also outperform due to growth in the IT sector while Godrej properties, Prestige, and Kolte Patil are other preferred picks. Meanwhile, Angel Broking's Gupta said they continue with buy rating on Sobha Limited and Neutral outlook on Godrej Properties.