Date:28/11/2009 URL: http://www.thehindubusinessline.com/2009/11/28/stories/2009112851411000.htm

Back Dubai crisis rocks realty stocks in the morning session

But shares recover after European markets open.

Our Bureau

Mumbai, Nov. 27

The roller-coaster movement of the Indian realty stocks on Friday can be attributed to mixed investor sentiment on account of the debt crisis in Dubai, said analysts.

Realty stocks across the board fell upon market opening on Friday only to recover after noon, once the European markets opened.

“The real estate sector saw a knee-jerk reaction to the Dubai debt crisis in the morning. However once the European markets – which have companies with the most exposure to Dubai – opened better than expected, market sentiments in India improved and realty stocks recovered,” said Mr Manish Sonthalia, Fund Manager, Motilal Oswal.

The BSE Realty Index, which tracks 14 major companies, witnessed severe volatility with the trading range of 275.87 points. It plunged to an intra-day low of 3378.38 (-7 per cent from previous trading day's close) before recovering, to close at 3614.10 (-0.55 per cent) on Friday.

“The Dubai debt crisis is unlikely to have any major impact on the Indian realty sector. Further, Dubai itself is not the predominant source of FII or FDI inflows into India,” said the head of equity research of a major international investment bank.

However, some analysts said that the Dubai crisis is a prelude to an overall real estate sector correction in India. “Dubai currently has at least Rs 9,000 crore in investments in the Indian realty segment, which could go out soon and negatively impact the real estate sector on a short term basis,” says Mr Saurabh Mukherjea, Head of India Equities at Noble group.

From medium- and long-term perspectives, the Reserve Bank of India's indication that the commercial property sector is due for a correction, as well as the move to international accounting standards next year, could also weigh on real estate stocks, he added.

On October 28, the apex bank increased the provisioning requirement for advances to the commercial real estate sector which could possibly increase interest rates on loans to this sector. Further, the move to International Financial Reporting Standards from Indian accounting standards could beat earnings of real estate companies significantly due to changes in certain revenue accounting principles, Mr Mukherjea added.