The charts indicate a rally is in the offing for realty stocks, but large caps may continue to be laggards
After underperforming for three months, the BSE Realty Index is showing signs of outperformance, going by the technical analysis indicator called the relative strength comparison (RSC). Generally used to gauge the performance of a stock or an index vis-à-vis another stock or index, the RSC chart of the realty index has nearly given a crossover to the 50-day exponential moving average (EMA), a signal of the likely long-term trend.
Historically, it has been observed that once the 50-day EMA line is breached on the upside, the index or the stock begins to outperform the competing benchmark. Thus, it appears that realty stocks, which have underperformed the Sensex since October 21, are set for a smart rally.
According to data, mid-cap companies have done better than the large caps since the beginning of 2009. In fact, the outperformance is clearly visible since October 21, 2009, when the realty index topped out at 4,742. More importantly, the stocks which are doing well in the pack are of companies that are primarily into residential realty, which has seen prices improving, across the country, in the last six months.
Movers and shakers
Select mid-cap realty stocks have outperformed the benchmark
Source: Bloomberg; * Closing prices as on Jan 18, 2010
Sobha, Brigade and Purvankara are focused in and around Bangalore, the IT hub of the country. And with the outlook for the technology sector improving, analysts see a revival in demand for residential properties.
“Prices of residential properties are already showing signs of stability and they have improved in most parts of the country. Once the commercial property market starts picking up, and this is expected to happen in the next two quarters, realty stocks may witness a fresh round of buying,” says Param Desai, research analyst, Angel Broking.
This is for real
The BSE Realty index, after underperforming the benchmark since October 21, 2009, is showing signs of outperformance, which is refl ected in the RSC (relative strength comparison), a technical indicator
Source: Bloomberg
Large caps such as DLF, Unitech and Indiabulls Realty, which have a higher exposure to the commercial realty segment, are yet to see a convincing crossover. The three underperformers collectively account for 71 per cent of the weight of the realty index. “We are not expecting further sops in the Budget, so overall we have a neutral to bearish view on the sector, until we see some more signs of price recovery,” says Ambareesh Baliga, vice-president, Karvy Stock Broking.
Going ahead, the markets will seek further cues in the monetary credit policy on January 29 and the Union Budget on February 26 and, in all likelihood, the realty index will hit a new 52-week high in a pre-Budget rally.