HSBC's Real Estate Picks for FY26: Up to 55% Upside Expected
HSBC has identified three real estate stocks with significant upside potential for FY26, driven by healthy inventory levels, manageable leverage, and strong free cash flow momentum.
Real EstateHsbcRbiRepo RateCrrReal EstateJun 09, 2025
The foreign brokerage, in its note on the real estate sector, expects a revival in new launches in FY26, supported by sustained pre-sales momentum, although off a high base. This positive outlook is underpinned by the Reserve Bank of India's (RBI) recent 50 basis points repo rate cut, marking the third consecutive rate cut by the central bank following reductions in February and April.
On June 6, shares of real estate companies rallied following the RBI's rate cut. The Nifty Realty index settled 4.68% higher, extending its gains for the second straight session. The rally was further boosted by the RBI's 100 basis points cut in the Cash Reserve Ratio (CRR), which will release up to ₹2.5 lakh crore liquidity in the system, reducing the cost of funding for banks.
Property consultancy Anarock termed the simultaneous repo and CRR cuts a “double boost” for affordable housing, especially amid ongoing global economic headwinds. The reduction in the repo rate is expected to spur demand in the Indian real estate sector, particularly within the affordable and mid-income segments. It will also lower borrowing costs for developers.
The CRR cut, on the other hand, increases liquidity in the system, which should enhance developers' access to capital, potentially speeding up project completion timelines. Additionally, banks now have greater room to reduce home loan interest rates, which could further uplift buyer sentiment in cost-sensitive housing segments.
However, Anarock also cautioned that the positive domestic momentum could be partly offset by global uncertainties. Trade tensions and tariffs imposed by the Trump administration have increased the cost of imported construction materials, which may affect developer margins. This, in turn, could impact demand in the luxury and commercial property categories.
Meanwhile, CLSA has identified key beneficiaries such as Sobha, Prestige Estates, Godrej Properties, and Sunteck Realty. Additionally, real estate investment trusts (REITs) and large rental-focused players like DLF and Phoenix Mills are expected to gain from lower debt servicing costs and potential asset revaluation.
HSBC's target prices and upside potential for the selected stocks are as follows:
- DLF: ₹920 (+14.5%)
- Godrej Properties: ₹3,500 (+54.6%)
- Sobha Developers: ₹1,850 (+22.0%)
- Oberoi Realty: ₹1,790 (+0.7%)
These stocks are well-positioned to benefit from the favorable market conditions and policy support, making them attractive investment options for FY26.
Frequently Asked Questions
What are HSBC's real estate stock picks for FY26?
HSBC has a 'Buy' rating on Godrej Properties, DLF, and Sobha, and a 'Hold' rating on Oberoi Realty.
What factors are driving the positive outlook for these real estate stocks?
Healthy unsold inventory levels, manageable leverage, and strong free cash flow momentum are key drivers for these stocks.
How did the RBI's recent rate cuts impact real estate stocks?
The RBI's 50 basis points repo rate cut and 100 basis points CRR cut have boosted real estate stocks by increasing liquidity and reducing borrowing costs.
Which segments of the real estate market are expected to benefit the most?
The affordable and mid-income segments are expected to benefit the most from the reduced repo rate and increased liquidity.
What are the potential risks to the real estate sector?
Global uncertainties, such as trade tensions and tariffs on imported construction materials, could impact developer margins and demand in the luxury and commercial property categories.
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