Real estate and jewellery continued to reel under selling pressure on Friday, three days after the government demonetised Rs 500 and Rs 1,000 notes in a bid to curb black money circulation in the economy. While the Nifty Realty index tanked nearly 5% in morning deals, stocks of most gems and jewellery makers lost up to 6.5%.
Given the demonetisation, analysts suggest the sectors with high cash usage are likely to be impacted most. The discontinuation of the Rs 500 and Rs 1000 notes would force nearly 84% of the cash holdings (amounting to Rs 14 lakh crore) to either mainstream itself or risk extinguishment, experts say. As a result, the assault on cash hoarding and its expenditure will hit at places where it is deployed the most – either in real estate, in gold or expenditure on unaccountable lifestyle.
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This was evident yet again on Friday, as investors sold stocks of companies engaged in construction & real estateand jewellery makers. According to reports, the Income Tax (I-T) department also conducted surveys on jewellers and suspected hawala operators across Mumbai, Delhi and parts of Punjab on Thursday.
Among individual stocks, DLF, Indiabulls Real Estate, HDIL, Delta Corp, Oberoi Realty and Prestige Estates slipping 2.9% – 6%. On the other hand, Kanani Industries, Gitanjali Gems, PC Jeweller, TBZ, Titan Company and Rajesh Exports from the jems and jewellery sector lost 1.3% – 5.2%. By comparison, the frontline indices – the S&P BSE Sensex and the Nifty 50 – were trading 1.4% lower each.
So what should you do with these stocks? Is there more pain in store?
According to Crisil Research, cities and micro markets such as the National Capital Region (NCR) with high investor demand to be severely impacted. Residential real estate demand is likely to decline more severely in micro markets with high share of unorganised developers. On the other hand, developers will face serious fund crunch in the short-to-medium term, which will further delay ongoing projects.
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As regards the jewellery segment, though the demand for gold is likely to pick up in the long term, the industry, analysts say is likely to feel the heat in the near term, as around 80% of the gems and jewellery purchases in India are done in cash.
Given this backdrop, A K Prabhakar, head of research at IDBI Capital feels there could be more pain in store in the near-term for the real estate sector, which was already reeling under excess inventory and rising input costs. One should exit these stocks on a rally, he advises.
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“People are likely to postpone gems and jewellery purchases as these are luxury items and not basic necessities. This will in turn hurt the companies in this segment. Investors should avoid these stocks for now,” he adds.
In medium-to-long term, however, analysts at Edelweiss Research expect the listed players operating in large markets to benefit, while those operating primarily in smaller cities could be hurt.
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“While sales could be impacted in short term, we see little impact on earnings, given these are primarily driven by sales already locked in. Oberoi Realty, Godrej Properties, Sobha, Brigade Enterprises and Sunteck Realty could be likely beneficiaries,” says Manoj Bahety of Edelweiss Research in a recent report.