The S&P BSE Realty Index: Everything Looks Just Fine

Today was a gloomy day alright. SEBI dished out a three year ban on DLF and its directors from accessing capital markets and this led to DLF stocks doing the Humpty Dumpty trick on the S&P BSE Realty Index. As the afternoon came, I chased the latest stories on DLF and how the Realty stocks were doing in general and here are some things that really registered;

Economic Times News Article on the S&P BSE Realty Stocks and DLF

1. "Its bloodbath on Dalal Street specially for the realty sector stocks after the market regulator Sebi barred India's biggest real estate company DLF, its chairman K P Singh and five others from accessing stock markets for three years..." - That is not the end of the world.

2. "The Sebi verdict on DLF sends a singular message to not only investors of realty stocks but also to stake holders of companies with shoddy corporate governance practices, ET said in a report." - Which basically means this is a strong message for all most some corporate entities out there.

3. "The BSE Realty index was the top loser among other sectoral indices on the BSE, down over 6 per cent, led by losses in DLF, Unitech, Indiabulls Real Estate, Sobha Developers and Godrej Properties." - I hate to admit it but so far, I had never felt the need to access or follow the BSE Realty Index. That fact needed to change right away.

4. "The news is likely to hit the entire real estate sector negatively and investors are advised to stay away from these sectors as of now and look for companies with strong balance sheets, say analysts." - Okay. So who are these analysts and what is the basis of such strong negative advice from them?

The S&P BSE Realty Index- On Getting There

Its stupid to even mention this but the way information about realty stocks, trends and historic data come up on the BSE Realty Index page is just awesome. The charts are crisp and navigating through the website feels intuitive. 

Plus, I found a really interesting page where you could compare various BSE Indices across time periods. I started with doing a comparo between the BSE Sensex and the BSE Realty Indices. Check out the cool result below. 

Starting at a base value of 100 the Grey line is the BSE Realty and the Yellow line the BSE Sensex over the last 5 years!

Okay. So I am hooked.

Getting my hands dirty

And trying to get my feelings across using arithmetic and graphs ;)

What does a bloodbath on the S&P BSE Realty Index look like?

When I compared yesterday and 'bloodbath' today, I saw that the almost 8% drop looked serious. 

A little alarmed by what I saw, I dived in deeper and started toying with the time periods and came up with some charts that may help you see what I saw.

The BSE Realty Index over the last 90 days

BSE Realty Performance - August - September- October 2014. Steady Decline in Value

Over the last 365 days

BSE Realty Index performance over the last 1 year. Notice the euphoria of the BJP coming to power. It is just settling back as realities of weak demand and other issues continue to plague the realty sector.

And look at what happens when you set the starting point to 2007

The BSE Realty Index from October 2007 through today. 

Things I learnt today and would like to share with you;

#1 The BSE Realty Index has been hovering around the 1300 - 1800 mark on an average for almost 3 years now. I would not be surprised (or devastated) if the index values came down further tomorrow or for all of this week and the next. As long as it stays above the 1100 mark, there is no serious cause for alarm. 

#2 From April 2014 to about now, the Realty Index did a 'BJP Govt in power with full majority' euphoria curve like most other national indices. This looks like a 6 to 9 month cycle that is coming to an end now. A steady upward climb of the Realty Index will begin ONLY when demand is significantly stronger and excess supply is controlled, which should take between 18 to 36 months from now. Minimum.

#3 The trend that emerges after analysis of all this information is random and unreliable. Predictions could be highly risky because I strongly feel that we have insufficient data to ensure accurate forecasting. Maybe in another ten years, we will figure it out a little better but don't expect a magical equation to predict things in real estate anytime soon.

#4 If you are serious about real estate, stop listening to what analysts show you or say to you. Instead, get your hands on reliable data, analyse it yourself and have it vetted by people whose business sense you trust. 

#5 Everything about the BSE Realty Index looks just fine to me. Almost everything that is. If an 8% drop in a day means bloodbath, then a drop in the index's value from almost 14,000 points to 1400 points in less than 7 years could possibly be described only by another 'B' word. Yup. The one which has more than 2 Ks and ends with an E.

Cheers!

Note: This post is being published after midnight and though the date changes to 15th October, the term 'today' across this post should be treated as 14.10.2014. :)

About the author

Rahul Mishra is a real estate professional who started his life as a salesman, selling homes in the city of Kolkata since 2001. He worked pan India in real estate organisations like MMG Realty, Bengal Shrachi, The Phoenix Mills and The Space Group before helping co found Pillars with a single objective - To make real estate easy!

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