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Below  perspective on the Nifty Realty Index today from Naveen K R, smallcase manager & Senior Director - Windmill Capital

Since mid 2020’s, the Indian housing cycle has been on an upswing. Housing sales have since doubled, and supplies are still only catching up. The Indian housing market has seen volumes surge by ~25% YoY in 2023, doubling in 3-years. 

While housing supply has started matching demand in 2023, due to sales velocity, supply is down to near all-time lows of ~16-17 months. This is a 12-year low, across the top  7 cities of India. 

While mortgage rates have risen by ~225bps from their 2020-21 lows, they have been stable since March 23 and back to pre-COVID levels. 

Due to a combination of these factors, pricing has kept rising through 2023, with a ~12% average YoY growth. According to analysts, 2024 should see a residential volume rise of 10%+ with increased upside if mortgage rate cuts and / or govt. policy support.
The Nifty realty index has outperformed the broader market in 2023, marking a strong turn since RBI paused on rate hikes in March '23. A potential rate cut in 2024, as global rates likely head down, will be positive for the sector. 

However the strong rally in Realty stocks so far, has priced in some of these gains. It is important to note that property sales have favoured premium & luxury housing in this upturn so far. A potential rate cut could actually help the affordable housing segment more. With talks of the Government reviving its interest subvention scheme for affordable housing, there seems to be some more steam to the rally.

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