Nifty Realty Sees Sharp 6.5% Decline, Marking Its Biggest Loss in 7 Months

The Nifty Realty index fell sharply by 6.50% on January 13, 2025, marking its largest single -day drop in seven months. This decline brought the index to an 8-month low, with a 21% correction from its December peak. The sell-off was driven by concerns over delays in US Federal Reserve rate cuts, slowing housing sales, and slower economic growth in India.

Key Factors Behind the Nifty Realty Decline

The sharp fall in the Nifty Realty index was primarily attributed to external economic factors, such as the latest batch of economic data from the United States. On January 12, 2025, the US reported that it had added 256,000 jobs in December 2024, the highest in nine months. This robust jobs report indicated sustained economic growth in the world’s largest economy. The strong labor market figures have raised concerns that the US Federal Reserve might slow down its rate-cut cycle in 2025, which could have a negative impact on the broader markets globally, including Indian real estate.

While the US Fed had already implemented three rate cuts in 2024, investors were hoping for further cuts in 2025 to stimulate economic growth. However, the stronger-than-expected jobs report reinforced the Fed’s belief that the economic conditions might not warrant an aggressive rate-cutting strategy moving forward. As a result, market expectations shifted, suggesting the Fed may only announce one rate cut in 2025, rather than continuing the rapid rate cuts that had previously been anticipated.

This outlook led to increased demand for the US Dollar, which saw its value climb above the 110 mark, contributing to a shift in investor sentiment towards safer assets and further selling in risk-sensitive sectors such as real estate.

Sector-Specific Concerns in the Indian Realty Market

Beyond the global economic impact, the Indian real estate sector also faced its own set of challenges. One of the key concerns was the moderation in housing sales during the December quarter. PropEquity, a real estate data analytics firm, estimated a 21% year-on-year decline in housing sales across nine major Indian cities during the October-December period. This slowdown in sales was largely due to a high base effect from the previous year, but it also pointed to a broader weakness in the housing market.

For instance, the total residential property sales in the top nine cities—Delhi-NCR, Mumbai, Navi Mumbai, Kolkata, Bengaluru, Pune, Hyderabad, Chennai, and Thane—were expected to drop to 1.08 lakh units from 1.37 lakh units during the same period last year. The only exception was Delhi-NCR, where sales were projected to see growth. The slower pace of sales in other markets further added to investor concerns.

Moreover, the Indian real estate market has also been grappling with delays in project approvals, particularly in Bengaluru, which has led to fewer new launches. Brokerage firm JM Financial highlighted that approval delays had resulted in a moderation of new launches, which continued to persist in the third quarter of FY25. This moderation in launches translated into lower pre-sales and could have a cascading effect on the overall sector’s performance in the coming months.

Impact on Realty Stocks

The sharp drop in the Nifty Realty index mirrored a significant sell-off in individual real estate stocks. On January 13, the stocks of all 10 constituents of the Nifty Realty index plummeted by 5% to 10%, leading to a cumulative loss of 6.50%. This marked the index’s largest intraday drop in months.

Macrotech Developers was hit the hardest, experiencing a 9.2% drop in its stock price. Other major realty stocks followed suit, with Phoenix Mills falling by 7.9%, Brigade Enterprises by 7.4%, and Sobha by 7.1%. Meanwhile, stocks like Godrej Properties, DLF, Oberoi Realty, Mahindra Lifespace, and Raymond saw declines of more than 5%.

This decline in stock prices has driven some companies significantly lower from their one-year highs. For example, Raymond’s stock is now trading at a 57% discount from its one-year high. Other companies like Sobha, Mahindra Lifespace Developers, Godrej Properties, and Prestige Estates Projects are down by 30% to 40% from their respective peaks.

Long-Term Outlook for the Realty Sector

Despite the recent sell-off, some analysts remain cautiously optimistic about the long-term prospects of the Indian real estate sector. India’s real estate market, especially in major cities, continues to benefit from strong demand driven by urbanization, government infrastructure initiatives, and a growing middle class. However, the market faces short-term headwinds, including economic uncertainty, delayed project approvals, and fluctuations in consumer demand.

In the immediate term, key indicators such as new project launches, the pace of housing sales, and the global economic environment will likely be pivotal in determining the direction of the real estate sector in India. The performance of major players in cities like Bengaluru, Delhi-NCR, and Mumbai will also be closely watched.