Real estate, auto, finance companies bleed

MUMBAI: DLF honcho K P Singh is having a bad year. So far in 2008, he has watched the value of his holdings in DLF, the largest real estate firm in India, dwindle from Rs 1.61 lakh crore at the start of the year to Rs 68,465 crore now. But Singh has company. Ramesh Chandra, the main promoter of Unitech, the second largest real estate company, has lost about Rs 39,100 crore.Chandra's holding is Unitech is now worth Rs 22,300 crore, down from Rs 61,333 crore in January this year.
The list could go on. And in this long list, Singh and Chandra are joined by the promoters of Ansal Properties, Omaxe, Indiabulls Real Estate and hundreds of other real estate firms. Blame it on the stock market one could say. After all at a time when inflation rate is at a 13-year high and all indications point to higher interest rates, less homes are being sold and hence investors are taking a bearish view of the stocks of home builders.
Consider this: So far in 2008 DLF's stock price has plummeted nearly 58%, Unitech's 62%, Omaxe 71% and Ansal Properties 78%. This means if one had invested Rs 1 lakh in Ansal Properties early this year, that investment is now worth just Rs 22,000.
But the bloodbath is not limited to real estate firms alone. Even infrastructure, finance and auto companies have been hammered severely over the last five-and-a-half months. For investors, the important question is how far this could go on? Market players say that at this juncture inflation is likely to stay high for some time. ������Wholesale price inflation is likely to remain high for the next 4-5 months and a policy rate hike is round the corner,'' said Nirmal Jain, chairman, India Infoline.
The higher rate of inflation, which is expected to remain above 8.5% for the rest of the year at least, will definitely put pressure on interest rates. Higher interest rates in turn will leave certain sectors vulnerable, particularly those sectors that require large amounts of capital, since raising funds in this scenario will become more expensive. So sectors like engineering, capital goods and infrastructure will be negatively affected, said Siddhartha Sanyal, VP-Institutional Equities-Research, Edelweiss Securities.
But when it comes to auto and realty__the sectors which are sensitive to interest rates__it's a double whammy. ������Like other sectors, the cost of raising money will increase for these companies. But the demand in these sectors depends on the consumers having access to credit. If the interest rates go up, loans become more expensive and the consumer demand for real estate and autos will be hit,'' Sanyal added.
A high interest rate scenario is not favourable for banks or financial services companies either. ICICI Bank recently hit a 52-week low, with its share price currently trading almost 50% lower than the start of the year. Other than lower offtake of loans, banks would also have to take marked-to-market losses on their bonds portfolio.