11 January,2011 06:58 AM IST | | Varun Singh and Bobby Anthony
Credit growth and rising interest rates coupled with prevailing market trend might trigger further drop to 18,500 mark and lower real estate prices, say analysts
Friday markets opened at 20,164 points and closed at 19,692 on Monday.
A drop of nearly 200 points was seen in the morning, and by evening the market was down to 19,224 with another drop of same quantum showing a sizable drop of 900 points in two days, leading experts to believe that markets will see another fall in the coming days, bringing loss for investors.
Analysts say investors planning to invest in realty stocks are likely to wait longer, as they feel the stocks would fall further
Stock analyst Deven Choksey said, "People may relate this downturn to inflation. However, I think the main reason is a major influx of money because of a weak dollar. But now the dollar is regaining strength and people are withdrawing."
Stock analyst Ashok Jainani claims that the constant upward-moving inflation rate is responsible for the stock market fall. Investors do not have money to invest, as banks are not releasing funds.
"Banks are in a catch-22 situation being affected by credit growth, the interest rates are rising and to protect their asset quality, they need to ramp up scrutiny before releasing funds," he said.
"Small investors need to be ultra cautious while investing. If the market follows this trend, it will see a quick drop further, and in the next few days might even touch the 18,500 mark," he added.
Jainani's prediction for realty index was the same. He said, "Interest rates of banks are rising, thereby deterring many investors. If this trend continues, real estate prices would come down by the start of the monsoon."
Speaking to MiD DAY, some analysts said that investors planning to invest in realty stocks are likely to wait longer, because they feel these stocks would fall further.
According to market sources, scrips likely to be battered further are Parsvanath Developers, DB Realty and Prestige Estates.
"These scrips are guaranteed to slide further. There has been no panic buying and this is merely the beginning. Panic has to set in and ignite panic sale of stock.
But this will take four months to play out. So investors should wait awhile longer. When stocks hit absolute lows, and cannot go lower, investors should buy.
If timed right, within a year they can get 80 per cent returns," said an analyst.
Limited options
According to a realty sector analyst requesting anonymity, "People will wait for some more time so that they can corner stocks at a cheaper price.
Developers who have taken huge loans will suffer since RBI will not allow rolling over. Their option is to liquidate stocks to pay off the banks. People are aware of this and are likely to wait till these stocks lose more value and then buy."
Market sources said, investors are planning to corner stocks of real estate companies, known to have taken huge loans from banks to invest in residential projects.
"RBI had allowed developers to roll over their loans earlier. However, this time they expect loan repayment by March.
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So investors must pick stocks of those developers who had taken loans to invest in residential projects, preferably with unsold inventories," said another prominent analyst requesting anonymity.
Incidentally, most real estate analysts were reluctant to give their opinions and some had even switched off their mobile phones when attempts were made to reach them.
"The sector is bleeding and so everyone seems to be running for cover. Nobody wants to comment on a bleeding sector," a leading investment analyst quipped.
