Gautam Duggad on why real estate developers should avoid quick, sharp price hikes

The real estate sector has boomed over the past year, as evidenced by the doubling of the Nifty Realty index.

According to Gautam Duggad, head of institutional equities research at Motilal Oswal, to extend this cycle, it is crucial for developers to behave more rationally and avoid raising prices too early.

Duggad has been optimistic about the real estate sector for over two years now and believes that the sector is still in a growth phase.

“The money that all these developers can make by extending the cycle will be much higher compared to what they get by raising prices too early,” he noted.

He highlighted the significant increase in pre-sales and business development over the past two years, which is now reflected in profits and cash flow.

Looking at the bigger picture, the sector continues to be very attractive, said Duggad, who has invested in Godrej Properties, Sobha and Prestige, among others.

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Duggad also shared his views on other important sectors where Motilal Oswal recently revised its forecasts.

“We have been underweight in technology for some time. We have now moved to overweight this quarter. Earnings were decent, broadly in line, with HCLTech slightly outperforming due to higher other revenues,” he explained.

He also highlighted significant growth in the defence and railways sectors but advised caution due to high valuations.

“There are sectors like defence in the market where the market capitalisation has gone up from ₹1 lakh crore three years ago to ₹11 lakh crores now. Railways, again, the market capitalisation has gone up from ₹1 lakh crore three years ago to ₹7.2 lakh crores now,” he said.

He stressed that while profits in these sectors had doubled, the price-to-earnings (P/E) ratio had increased fivefold.

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