Real Estate Stock Weakness May Be Overdone, Says Market Expert

Market expert Sandip Sabharwal has suggested that the recent sharp correction in real estate stocks may be an overreaction by investors. He believes current pessimism surrounding the sector could be misplaced, creating potential opportunities for selective long-term buyers.

Accounting Practices Cloud Real Estate Performance

Sabharwal points to industry accounting practices as a key reason for the misunderstood outlook. Real estate companies use percentage-of-completion accounting, which recognizes revenue gradually as projects are built. This can lead to lumpy earnings reports that do not always reflect the underlying business momentum. When quarterly results appear weak due to these accounting rules, investors may sell off shares without considering the full picture of future deliveries and sales.

He highlights that the fundamental demand for housing in India remains robust. This demand is supported by factors like rising incomes and a growing preference for owning modern homes. Companies with strong execution capabilities and healthy balance sheets are positioned to benefit from this multi-year trend, despite short-term stock price volatility.

Selective Opportunities in Major Developers

Within the sector, Sabharwal identifies specific companies that may be well-placed. He names DLF, Godrej Properties, and Prestige Estates as potential selective buying opportunities. These are among the largest and most established developers in the country. Their size allows them to manage large projects and secure financing more easily than smaller rivals. For investors, this focus on industry leaders suggests a strategy of favoring quality and financial stability during a sector-wide downturn.

The view implies that the market is not fully differentiating between well-run companies and those with weaker prospects. This environment can allow investors to purchase shares of high-quality businesses at more attractive valuations.

Broader Market View: Banks, NBFCs, and Midcaps

Beyond real estate, Sabharwal’s outlook extends to other segments of the Indian market. He sees potential in large banks and select non-banking financial companies (NBFCs). These institutions are central to economic growth as they provide the credit needed for business expansion and consumer purchases. A stable banking sector is often seen as a pillar for broader market health.

Perhaps his most notable comment is on the broader correction in midcap and smallcap stocks. After a significant rally, many of these smaller companies have seen their share prices fall sharply. Sabharwal suggests this correction is throwing up long-term opportunities. He believes that over a two-year horizon, midcaps and smallcaps now offer the best risk-reward balance for investors.

This perspective encourages investors to look beyond short-term noise. The recent sell-off may have brought many fundamentally sound smaller companies to reasonable valuations. For those with a longer investment timeline, this period could be a chance to build positions in growing businesses at lower prices.

A Call for Selective, Long-Term Investing

Overall, Sandip Sabharwal’s analysis presents a theme of selective optimism amid market corrections. He advises against broad sector-wide assumptions, particularly in real estate. Instead, he recommends focusing on individual companies with strong fundamentals. His views underscore a classic investment principle: market pessimism can create buying opportunities for disciplined, long-term investors who are willing to conduct thorough research.

For general investors, this serves as a reminder that sharp market movements often require context. Understanding industry-specific factors like accounting methods is crucial. The current market phase, while challenging, may be laying the groundwork for the next cycle of growth for prepared investors.