Arsiwalla von Kotak advises investors to follow the “basket approach” for real estate

Investors looking to bet on the real estate sector should look at a group of potential winners rather than individual companies as spikes in demand, according to Murtuza Arsiwalla of Kotak Institutional Securities.

Bengalurus Sobha Ltd. and Prestige Estate Projects Ltd .; Mumbai’s Lodha Group (Macrotech Developers Ltd.), Godrej Properties Ltd. and Oberoi Realty Ltd .; and Delhi’s DLF Ltd. are among the biggest players in their micro-markets, but it’s hard to say who will benefit from the increased market share opportunities, said Arsiwalla, director at Kotak Institutional Securities, in an interview with BloombergQuints Niraj Shah.

However, the big players have access to capital, consumer confidence and will benefit from it, he said.

Kotak’s recommendation is to play the real estate theme through the “basket approach, not the corporate approach,” said Arsiwalla. “Now it depends on which management is going to take the opportunity. Go with the leaders, put a basket and hopefully two or three out of five will do amazingly well.”

Home demand, as measured by property registrations, has skyrocketed as record-low interest rates, incentives, and the need for larger homes to meet work-from-home demands have brought back buyers. That has led to a rally in real estate stocks. The Nifty Realty Index is up nearly 63% so far this year, compared to the Nifty’s 26.5% increase.

The consolidation in the real estate sector suddenly found acceptance among the investor brotherhood, said Arsiwalla. “This is the biggest change that has come with investing in real estate stocks.”

Still, according to Arsiwalla, there are several large companies that could be the real estate sector’s dark horses. “With a big corporate identity, access to capital and consumer confidence, new entrants will gain market share,” he said. “There are at least a handful of companies trying to recharge their batteries and get back to the real estate industry by leveraging their group exposure.”

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