On October 26, the Nifty Realty index took a significant hit, plummeting by as much as 3 percent, while the Nifty Metal index also saw a decline of up to 2 percent.
The most significant casualties of this market turmoil have been the realty and metal sectors. Analysts are forecasting the possibility of continued pressure in the near term if there’s no relief from the rising bond yields.
Bears have firmly gripped Dalal Street as benchmark indices extended their losing streak for the sixth consecutive day on October 26. This downward trend can be attributed to weak global cues, rising bond yields, and surging crude oil prices.
AK Prabhakar, the head of research at IDBI Capital, warned that the exceptionally high treasury bond yields over the last decade would adversely affect non-yielding commodities such as metals, ultimately impacting the real estate sector as well.
Globally, the US 10-year treasury yields have resumed their upward trajectory, reaching a nearly 16-year high of 4.95 percent, while the two-year yield remained around 5.1 percent. In parallel, Indian government bond yields have also surged, reaching 7.36 percent, nearing a 7-month high.
Analyzing the Real Estate Sector’s Decline
Vinod Nair, the head of research at Geojit Financial Services, anticipates further profit-booking in the real estate sector. He explained, “The profit-booking in the real estate sector has just commenced. The Nifty Realty sector had outperformed other sectoral indices in the past three months due to strong foreign investor interest. However, in the current scenario, we expect a slowdown in foreign investments in the sector, prompting smart investors to book profits now, with aggressive selling expected down the line.”
Deepak Jasani, the head of retail research at HDFC Securities, shares a similar viewpoint. He mentioned that when market sentiments turn edgy, investors tend to book profits, which is likely to be the case in the current environment.
Over the past three months, the Nifty Realty sector had surged by 4 percent, outperforming the benchmark Nifty50 index, which saw a decline of 4 percent during the same period.
Given the high-beta nature of the real estate sector, Nishit Master, portfolio manager at Axis Securities PMS, suggests that investors should avoid it. Instead, he recommends selectively investing in high-quality companies in the capital goods, automobile, and banking sectors.
China’s Stimulus Measures and the Metal Sector
Despite the announcement of $137 billion in government bonds by the Chinese government on October 25, domestic metal stocks saw a decline on October 26. This was despite the surge initially sparked by China’s stimulus measures. Prominent stocks in the Nifty Metal Index, including Hindustan Zinc, JSW Steel, Hindalco, and Tata Steel, all experienced negative movements.
Deepak Jasani of HDFC Securities explained that the initial cheer in metal stocks on October 25 due to China’s stimulus measures failed to sustain on October 26, as there was no immediate impact. He emphasized that the real impact of these measures may take some time to materialize.
Vinod Nair of Geojit Financial Services remains cautious about the overall sector. He believes it will continue to be negatively impacted until there is a significant increase in industrial demand from developed economies, where demand remains subdued due to higher interest rates.
According to a report by S&P Global Ratings, analysts are predicting a 5 percent decline in China’s property sales next year, following an anticipated 10-15 percent drop this year.
It’s noteworthy that despite the stimulus measures, concerns persist regarding China’s elevated debt levels, which could negatively impact the struggling infrastructure sector and dampen the appeal of metals for some time.
Over the past three months, the Nifty Metal Index has declined by 3 percent, in contrast to the 4 percent drop in the Nifty50 benchmark.
