Liquidity Fuels Market Growth; Overweight on Hotels, Real Estate, and REITs
JM Financial is bullish on real estate stocks like DLF and REITs, anticipating interest rate declines to boost REIT yields. They are also overweight on hotels due to limited investment and strong demand, with Leela Hotels and Chalet Hotels as preferred picks.
LiquidityReal EstateReitsHotelsFii InflowsReal EstateJun 30, 2025
The monthly SIP (Systematic Investment Plan) numbers are robust, standing at nearly 267 billion per month. Mutual funds, despite holding about 5% of their portfolios in cash, are compelled to deploy these funds regularly, further boosting market activity. Additionally, FII inflows have been positive since March, contributing significantly to the market's upward trajectory.
While fundamentals and the economic outlook are stable, valuations across largecaps, midcaps, and smallcaps are not particularly attractive, trading at one standard deviation or more above the mean. This makes it challenging to justify the current market levels based on valuations alone. However, the strong liquidity flows are keeping the market momentum going.
JM Financial is particularly bullish on real estate, REITs, and hotels, sectors that are not represented in the Nifty 50. In the real estate sector, stocks are generally trading at a premium, often 15-20% above their net asset value (NAV). Historically, these stocks have traded at a 15-20% discount to NAV, making the current premium notable. Despite this, JM Financial remains selective and favors DLF, which is trading at par.
The interest rate environment is a key factor supporting the real estate and REIT sectors. As interest rates decline, REITs become more attractive, offering yields of around 7% with a growth potential of about 10%. This makes REITs an appealing investment, especially in a low-interest-rate scenario. However, not all real estate stocks are equally favored, as some remain expensive and may face softer performance in the near term.
The hotel sector is another area of focus for JM Financial. Over the past four to five years, there has been limited investment in the hotel industry, leading to a supply-demand imbalance. This imbalance is expected to persist over the next year or so, making hotels a favorable structural play. Leela Hotels and Chalet Hotels are specifically highlighted as preferred stocks due to their strong positioning and demand dynamics.
In summary, the current market strength is largely driven by liquidity, with strong domestic and FII inflows sustaining the momentum. Despite less attractive valuations, sectors like real estate, REITs, and hotels are poised for growth, driven by favorable interest rate trends and supply-demand dynamics.
Frequently Asked Questions
What is the primary driver of the current market surge?
The primary driver of the current market surge is strong liquidity, fueled by robust domestic and FII inflows.
Why is JM Financial bullish on real estate stocks like DLF?
JM Financial is bullish on DLF because it is trading at par, offering a more reasonable valuation compared to other real estate stocks that are trading at a premium.
How do interest rate declines impact REITs?
Interest rate declines make REITs more attractive, as they offer yields of around 7% with a growth potential of about 10%, making them a favorable investment in a low-interest-rate environment.
Why is the hotel sector attractive for investment?
The hotel sector is attractive due to a supply-demand imbalance, with limited investment over the past few years and strong demand, creating a favorable structural play.
Which hotel stocks does JM Financial prefer?
JM Financial prefers Leela Hotels and Chalet Hotels, citing their strong positioning and demand dynamics.
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