HSBC's Top Real Estate Picks for FY26: Up to 55% Upside
HSBC has identified three real estate stocks with significant upside potential for FY26. The brokerage firm expects a revival in new launches and sustained pre-sales momentum.
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The foreign brokerage, in its note on the real estate sector, said it expects a revival in new launches in FY26, supported by sustained pre-sales momentum, although off a high base. This outlook is bolstered by recent monetary policy changes from the Reserve Bank of India (RBI).
On June 6, shares of real estate companies rallied following the RBI's 50 basis points repo rate cut. This marks the third consecutive rate cut by the central bank, following reductions in February and April. The Nifty Realty index settled 4.68% higher, extending its gains for the second straight session.
The rally in real estate stocks was also seen after the RBI slashed its Cash Reserve Ratio (CRR) by 100 basis points. The cut in CRR will release up to ₹2.5 lakh crore liquidity in the system and reduce 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.
Frequently Asked Questions
What are HSBC's top real estate picks for FY26?
HSBC has a 'Buy' rating on Godrej Properties, DLF, and Sobha Developers, and a 'Hold' rating on Oberoi Realty.
Why is HSBC bullish on these real estate stocks?
HSBC expects a revival in new launches, sustained pre-sales momentum, healthy unsold inventory levels, manageable leverage, and strong free cash flow momentum.
What recent RBI policy changes have impacted the real estate sector?
The RBI has cut the repo rate by 50 basis points and the CRR by 100 basis points, which should boost liquidity and reduce borrowing costs for developers and buyers.
How will the RBI's policy changes affect the real estate market?
The policy changes are expected to spur demand, particularly in the affordable and mid-income housing segments, and reduce the cost of funding for banks and developers.
What are the potential risks to the real estate sector despite the positive domestic momentum?
Global uncertainties, such as trade tensions and tariffs on imported construction materials, could increase costs and affect developer margins, particularly in luxury and commercial property categories.
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