Poor Run of Real Estate Stocks in India: Where’s the Nub?

27 01 2012

In 2008 the real estate sector in India had a market capitalization of Rs. 5 lakh crore ( 7% of the overall market cap). Now it is just about Rs. 1 lakh crore (less than 2% of the overall market cap) which could well be the among the lowest contributions of this sector to overall market capitalization anywhere in the world . ( Source of the Information: Reliance Capital).

Why the wide gap between the demand and supply of real estate in the real economy is not getting reflected in the stock prices of the real estate companies? To address the issue effectively, we need to remind ourselves about the true nature of the problem during the impending ‘budget season’ when articles and talk shows will be all agog about the need for various kinds of ‘reforms’.

The key issue, as we all know, is information asymmetry. All reforms in the sector should now be focused on how to minimize market inefficiencies owing to informational dysfunctions. I’m sure, forces beyond the control of the vested interest will bring in required changes, sooner or later.

– Rajib Sarkar


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