Chapter 1

Introduction

1.1 Introduction to real state sector:

Real estate or immovable property is a legal term (in some jurisdictions) that encompasses land
along with anything permanently affixed to the land, such as buildings. Real estate is often
considered anonymous with real property (also sometimes called reality), in contrast with personal
property (also called personality). However, in technical terms, real estate refers to the land and
fixtures themselves and real property are used primarily in over real estate. The term real estate
and real property are used primarily in common law, while civil law jurisdiction refers instead to
immovable property. In law, the word real means relating to a thing as distinguished from a
person. Thus the law broadly distinguishes between real property (land and anything affixed to it)
and personal property (everything else e.g. clothing, furniture, money).

(a) Real Estate Business Includes:

With the development of private property ownership, real estate has become a major area of
business. Purchasing real estate requires a significant investment and each parcel of land has
unique characteristics, so real estate industry has evolved into several distinct fields.
Some kind of real estate businesses include-
• Appraisal – Professional valuation services
• Brokerage – Assisting buyers and sellers in transactions
• Development – Improving land for use by adding or replacing buildings
• Property Management – Managing a property for its owner(s)
• Real Estate Marketing – Managing the sale side of the property business
• Relocation Services – Relocating people or business to difficult country

1
(b)Types of Ownership Interests:
Real property (immovable property) can refer to the real estate itself or to various types of
ownership interests in real estate, including:
• Freehold: Provides the owner the right to use the real estate for any lawful purpose and sell
when and to whom the owner wishes.
• Life estate: An interest in real estate which is granted to a life tenant until that person dies. The
interest terminates upon the death of the life tenant.
• Estate for years: Similar to life estate but term are a specified number of years.
• Leasehold: The right to posses and use real estate pursuant to the terms of a use.
• Reversion: The right to posses the free interest in real estate after the expiration of a life estate,
estate for years or leasehold.
• Concurrent or co-tenancy: The ownership of an interest in real property by more than one
party. Rights of any single party may be limited in various ways depending on the jurisdiction and
type of concurrency.

(c) Participants of Real Estate Market: The main participants in the real estate markets
Owner/User: These people are both owners and tenants. They purchase houses or commercial
property as an investment and also to live in or utilize as a business.
Owner: These people are pure investors. They do not consume but rent out or lease the property to
someone else.
Renter: These people are pure consumers.
Developers: These people prepare raw land for building which results in new product or the
market.
Renovators: These people supply refurbished buildings to the market.
Facilitators: This includes banks, real estate grocers, lawyers and others that facilitate the
purchase and sale of real estate.
The owner/user, owner and renter comprise the demand side of the market, while the
Developers and renovators constitute the supply side. In order to apply the simple demand and
supply analysis to real estate markets a number of modifications need to be made to standard
microeconomic assumptions and procedures.

2
(d) Real estate can divided into three categories: These are
• Commercial
• Residential
• Agricultural
We can invest into all the given areas and can make return by capital appreciation, rental income,
agricultural produce, lease and commercial use.
The following factors influence the price and cost of the real estate:
1. The physical characteristics of the property
2. The property rights
3. The time horizon of holding the property
4. Geographical area
5. The development rate
(e) Features of Real Estate Markets: In particular, the unique features of the real estate market
must be accommodated. These include:
• Durability
• Heterogeneous
• High transaction costs
• Long time delays
• Both an investment good and consumption good
• Immobility

1.2 REAL ESTATE SECTOR IN INDIA

Real estate sector in India is witnessing tremendous boom. Real estate industry in India is
presently worth $12 billion and is growing at the rate of 30 per cent per annum. The importance of
real estate sector in India can be gauged from the fact that it is the second largest employer next
only to agriculture. The real estate industry has significant linkages with several other sectors of
the economy and over 250 associated industries. According to a study One Rupee invested in real
estate sector results in 78 paise being added to the GDP of the country.

3
Eighty percent share of the real estate market is garnered by residential sector and the rest is
comprised of offices, shopping malls, hotels and hospitals. The sustained demand from the
Information Technology (IT) sector has fuelled the growth of real estate sector. It has been
estimated that the demand for IT space would be 66 million square feet over the next five years.
Several multinational companies are shifting their operations to India to take advantage of the
relatively low costs. With human resources being the key element in this industry, hiring people
and housing them assume great importance. The need to create space for people to work and live
triggers the development of other related infrastructure.

Traditionally, the government's support to housing had been centralized and directed through the
State Housing Boards and development authorities. In 1970, the Government of India set up the
Housing and Urban Development Corporation (HUDCO) to finance housing and urban
infrastructure activities. In 2002, the government permitted 100 per cent foreign direct investment
(FDI) in housing through integrated township development. However, FDI rules at the moment are
quite stringent. For FDI in real estate prior approval of the Foreign Investment Promotion Board is
required, which, can be rather tedious and there is a lock-in period for repatriation of the original
capital invested for a period of three years. On the top of it the rules stipulate a minimum land
holding of 100 acres. Getting 100 acres of free land in an urban area is almost impossible. Hence
the permission of FDI in real estate hasn't had the desired effect.

The boom in retail industry has also spurred the growth in real estate sector. India at the moment is
witnessing a spurt in extremely large retail spaces. Shopping malls with over 1 million sq ft of
space have become the order of the day. As the competition in the market intensifies, builders are
going out of their way to be different. Specialized malls, designer brands and multi-movie options
are the order of the day. With the big players like Reliance, Big Bazaar, and Bharti entering retail
market, real estate sector would be the big beneficiary.

The prospects for real estate industry in India looks buoyant. All the factors which contributed to
the growth of real estate sector-high disposable incomes, sharp increase in global liquidity,
selective capital account liberalization, looser credit policies, a greater availability of leverage due
to financial liberalization and a consequent increase in mortgage lending and price increases-look
set to continue.Indian real sector has seen an unprecedented boom in the last few years. This was
ignited and fueled by two main forces. First, the expanding industrial sector has created a surge in

4
demand for office-buildings and dwellings. The industrial sector grew at the rate of 10.8 percent in
2006-07 out of which a growth of 11.8 percent was seen by the manufacturing sector. Second, the
liberalization policies of government have decreased the need for permissions and licenses before
taking up mega construction projects. Opening the doors to foreign investments is a further step in
this direction. The government has allowed FDI in the real estate sector since 2002. FDI was
deemed necessary in the view of making the sector more organized and increasing professionalism
farmers. The villages adjacent to the metro cities have experienced sky-rocketing land prices. This
has induced farmers to sell their land for good money.

The Indian real estate sector has witnessed a resounding growth in recent years due to factors like
liberalization of urban policy and increased competition in the home loan segment. Also the
booming Indian economy, favorable demographics transition and liberalized foreign direct
investment (FDI) regime acted as a catalyst in this growth phase. Growing at a rate of 30 per cent,
the real estate sector has emerged as one of the fastest growing investment areas for domestic as
well as foreign investors. The sector will remain as a booming sector and more investment is
expected in the coming years.

Construction and allied sectors are considered as one of the largest employing sector in India
(including construction and facilities management). This vital sector is linked to about 300
ancillary industries like cement, brick and steel. So this sector has a strong backward and forward
linkages and the growth will translate into an over all positive impact on these ancillary sectors
too. Resultantly, a unit increase in expenditure in this sector has a multiplier effect and the capacity
to generate income as high as 4.5 times.

According to Mckinsey report the average profit from construction in India is 18%, which is
double the profitability for a construction project undertaken in the US. Five per cent of the
country’s GDP is contributed by the housing sector. In the next three or four or five years this
contribution to the GDP is expected to rise to 6%.

5
According to ‘Housing Skyline of India 2007-08’, a study by research firm, Indicus Analytics,
there will be demand for over 24.3 million new dwellings for self-living in urban India alone by
2015. As a result of this, this real estate sector is likely to throw huge investment opportunities. In
fact, an estimated US$ 25 billion investment will be required over the next five years in urban
housing, says a report by Merrill Lynch.

As far as the commercial property is concerned, the fast growing Indian economy has a cascading
effect. The growth will propel the demand for commercial spaces and space for modern offices,
warehouses, hotels and retail shopping centers. More over the demand for commercial office
space is led by the information technology (IT) industry and organized retail. For example, it is
estimated that the IT and IT’es alone is estimated to require 180 million sqft. by 2010. Similarly,
the organized retail industry is likely to require an additional 220 million sqft. by 2010. This huge
demand will spill over to all parts of urban India. Lease rentals have been picking up steadily and
there is a strong demand for quality infrastructure. A significant demand is also likely to be
generated as the outsourcing boom moves into the manufacturing sector.

With the significant investment opportunities emerging in this industry, a large number of
international real estate players have entered the country. Currently, foreign direct investment
(FDI) inflows into the sector are estimated to be between US$ 5 billion and US$ 5.50 billion.
According to Cushman & Wakefield, foreign investors have raised nearly US$ 30 billion since
March 2005 for investing in Indian real estate. 100% FDI is allowed under automatic route in
townships, housing, built-up infrastructure and construction development projects (which would
include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals,
educational institutions, recreational facilities, city and regional level infrastructure) subject to
certain guidelines. Leading companies like Carlyle, Blackstone, Morgan Stanley, Trikona, Warbus
Pincus, HSBC Financial Services, Americorp Ventures, Barclays and Citigroup are some of the
international players who have entered into Indian reality market. Real estate accounted for 26 per
cent of total value of private equity investments, with 32 deals valued at US$ 2.6 billion. And
according to industry estimates, another US$ 10-20 billion would pour into the sector in the next
three years.

6
The Government has introduced many progressive reform measures to unlock the potential of the
sector and also meet increasing demand levels.

•100 per cent FDI allowed in realty projects through the automatic route.
• In case of integrated townships, the minimum area to be developed has been brought down to 25
acres from 100 acres.

• Urban Land (Ceiling and Regulation) Act, 1976 (ULCRA) repealed by increasingly larger
number of states.

• Enactment of Special Economic Zones Act.

• Minimum capital investment for wholly-owned subsidiaries and joint ventures stands at US$ 10
million and US$ 5 million, respectively.

• Full repatriation of original investment after three years.

• 51 per cent FDI allowed in single brand retail outlets and 100 per cent in cash and carry through
the automatic route.

1.3 Tax and the Regulatory Environment

Over a period of time the Tax and the Regulatory Environment in the Real Estate Sector have
become very important. The Construction Industry is already subject to a number of taxes and is
considered as one of the overburdened tax segments. The corporate involved in this segment are of
the general opinion that there should not be any further imposition of any levy in any form in this
particular sector of the economy. Any further tax burden to this sector would affect the orderly
growth and development of the Real Estate Sector.
Some of our recommendations for this industry are as follows:

• Imposition of Service Tax: Service tax in relation to construction of residential complexes

having more than 12 houses has been imposed. However, no rational has been provided for
exclusion of services in relation to construction of residential bungalows which may not form
part of a ‘residential complex’. There seems to be no plausible rationale for taxing residential

7
complex and not construction of a bungalow which may entail a higher cost of construction in
many cases. Further no rational has been provided for the threshold of 12 dwelling units in a
residential complex. FICCI is strongly of the view that Service Tax should not be imposed in
the case of construction industry as the said industry is already paying a number of taxes on
different inputs purchased for constructing the houses in addition to taxes such as Works
Contract Tax (WCT).

• Value Added Tax (VAT): VAT has been introduced in 20States. FICCI has advocated
that the other states should also put the system in place as soon as possible. This would help in
the free movement of goods across all the states. It is a well-known fact that the system is
beneficial to all stakeholders- Consumers, Manufacturers, the State Government and Central
Government. Moreover, it is important that the concerns of traders and the Corporate Sector
should be resolved. For the successful implementation of VAT, it is important that there should
be uniformity in rates, rules and regulations across all the States. Not only do the rules vary
from State to State but so do the regulations and the procedures. There is an urgent need to
abolish CST, as VAT and CST cannot go hand in hand. It is important that local levies be
completely abolished from all States. Allowing of Credit for interstate transfer should be
brought in at the earliest.

• Free Trade Agreement (FTA): The Government may consider signing up of more FTAs
with other countries in the interest of the Real Estate Segment. However, while doing so the
interest of domestic players in that particular segment should also be kept in mind.

• Form C: Uniformity regarding permission to issue a Form-C for the purpose of purchasing
the goods to be use din the works contracts. The State Governments should abide by the
Central laws regarding the issuance of Form-C.

8
 • Central Sales Tax (CST): According to the CST norms, the sale definition includes works
contract. Hence, any goods moving from one State to another for the purpose of usage in
execution of works contract now falls under the ambit of inter-State works contract and the
State from which goods move is liable to impose a tax. Incidentally the trader ends up paying
tax in the State from which the goods moved, on the same item the tax has already been paid in
the place where the execution of the contract has taken place. This portrays a dichotomy in
taxation. The actual legal position is that the trader need not pay the tax in testate where the
work contract is executed on the inter-State purchases.

• Excise Duty on Immovable Property: Excise duty should not be levied in the case of
Immovable property like in the case of Installations such as lifts among others. The present
norm that the goods cleared under CKD would have to pay excise duty should be done away
with.

1.4 Future of Real Estate In India

With the economy surging ahead, the demand for all segments of the real estate sector is likely to
continue to grow. The Indian real estate industry is likely to grow to US$ 90 billion in by 2015.

• The future of the real estate sector in India is going to be guided by two important
factors, namely suitable amendments in the Foreign Direct Investment (FDI) guidelines in
townships, housing, built-up infrastructure and construction –development projects as well as
abolition of Service Tax on the construction industry especially the housing sector. Conversely,
if the abolition per se is not possible then drastic modifications in the existing Service Tax
norms is the need of the hour. This Sector is already overburdened with taxes; any further
imposition of taxes in any form would adversely affect the growth of this sector of the
economy.

9
• The importance of the Real Estate sector, as an engine of the nation’s growth, can be
gauged from the fact that it is the second largest employer next only to agriculture and its size
is close to US $ 12 billion and grows at about 30% per annum. Five per cent of the country’s
GDP is contributed by the housing sector. In the next three or four or five years this
contribution to the GDP is expected to rise to 6%.

• The Real Estate Industry has significant linkages with several other sectors of the
economy and over 250associated industries. One Rupee invested in this sector results in 78
paisa being added to the GDP of the State. A unit increase in expenditure in this sector has a
multiplier effect and the capacity to generate income as high as five times. If the economy
grows at the rate of 10% the housing sector has the capacity to grow at 14% and generate 3.2
million new jobs over a decade.

• The Tenth Five-Year Plan estimated a shortage of 22.4million dwelling units. Thus,
over the next 10 to 15 years, 80 to 90 million housing dwelling units will have to be
constructed with a majority of them catering to middle and lower income groups. The
investment required for constructing the houses and related infrastructure in this period would,
thus, be to the order of US $ 666billion at roughly US $ 33 billion to US $ 44 billion per year.

• Furthermore, this sector has witnessed a spurt in demand not just in residential property
but also in commercial property. A fast growing area is the I.T. and I.T.-enabled services along
with the BPO boom. Estimates worked out show that 42 million sq. ft. of space will be
required every year till 2008, only in I.T. and I.T.-enabled services especially in the cities like
Bangalore, Chennai, Hyderabad and Pune, which is also now gradually shifting to North India.

10
Foreign direct investment in India in real estate sector –recent regulatory
changes

Press Note No. 2 (2005 Series) Indian FDI Policy 2006

With a view to catalyzing investment in townships, housing, built-up infrastructure and

construction development projects as an instrument to generate economic activity, create new
employment opportunities and add to the available housing stock and built-up infrastructure, the
Government of India has decided to allow FDI up to 100% under the automatic route in townships,
housing, built-up infrastructure and construction development projects (which would include, but
not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational
institutions, recreational facilities, city and regional level infrastructure), subject to the following
guidelines:

100% FDI is allowed under automatic route in townships, housing, built-up infrastructure and
construction development projects (which would include, but not be restricted to, housing,
commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city
and regional level infrastructure) subject to certain guidelines

1.5 Risk and Return:

1.5.1 Risk

Risk is an important consideration in holding any portfolio. The risk in holding securities is
generally associated with the possibility that realized returns will be less than the returns expected
Risks can be classified as Systematic risks and Unsystematic risks.

• Unsystematic risks:

These are risks that are unique to a firm or industry. Factors such as management capability,
consumer preferences, labor, etc. contribute to unsystematic risks. Unsystematic risks are
controllable by nature and can be considerably reduced by sufficiently diversifying one's portfolio.

11
 • Systematic risks:

These are risks associated with the economic, political, sociological and other macro-level
changes. They affect the entire market as a whole and cannot be controlled or eliminated merely by
diversifying one's portfolio.

The three main risk associated with investing in a share are

1. The value of your investment could fall.

2. The amount of income you receive can fall, or stop altogether.
3. Your investment may increase at a lower rate than the rate of inflation, thus eroding the
purchasing power of your investment.

How to minimize the risks?

The company specific risks (unsystematic risks) can be reduced by diversifying into a few
companies belonging to various industry groups, asset groups or different types of instruments
like equity shares, bonds, debentures etc. thus, asset classes are bank deposits, company deposits,
gold, silver, land real estate, equity share, computer software etc. Each of them has different risk-
return characteristics and investments are to be made, based on individual’s risk preferences. The
second category of risk (systematic risk) is managed by the use of beta of different company shares

1.5.2 Return

The gain or loss of a security in a particular period is called return. The return consists of
the income and the capital gains relative on an investment. It is usually quoted as a percentage. The
general rule is that the more risk you take, the greater the potential for higher return - and loss.
Return can come from two sources, capital growth and income. Capital growth occurs when the
market value of the share increases. Income is the cash flow paid by a share such as dividends.

12
1.5.3 Relationship between Risk and Return

The relationship between risk and return is a fundamental financial relationship that affects
expected rates of return on every existing asset investment. The Risk-Return relationship is
characterized as being a "positive" or "direct" relationship meaning that if there are expectations of
higher levels of risk associated with a particular investment then greater returns are required as
compensation for that higher expected risk. Alternatively, if an investment has relatively lower
levels of expected risk then investors are satisfied with relatively lower returns.

This risk-return relationship holds for individual investors and business managers. Greater degrees
of risk must be compensated for with greater returns on investment. Since investment returns
reflects the degree of risk involved with the investment, investors need to be able to determine how
much of a return is appropriate for a given level of risk. This process is referred to as "pricing the
risk". In order to price the risk, we must first be able to measure the risk (or quantify the risk) and
then we must be able to decide an appropriate price for the risk we are being asked to bear.

Risk-Return Tradeoff

The principle that potential return rises with an increase in risk is called risk return trade off. Low
levels of uncertainty (low risk) are associated with low potential returns, whereas high levels of
uncertainty (high risk) are associated with high potential returns. In other words, the risk-return
tradeoff says that invested money can render higher profits only if it is subject to the possibility of
being lost.

Because of the risk-return tradeoff, you must be aware of your personal risk tolerance when
choosing investments for your portfolio. Taking on some risk is the price of achieving returns;
therefore, if you want to make money, you can't cut out all risk. The goal instead is to find an
appropriate balance - one that generates some profit.

13
1.5.4 Methods to Calculate the Risk

• Standard Deviation:

Volatility is a direct indicator of the risk of the fund. The standard deviation of a fund
measures this risk by measuring the degree to which the fund fluctuates in relation to its
average return of a fund over a period of time. A security that is volatile is also
considered higher risk because its performance may change quickly in either direction at
any moment.

• Beta

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in

comparison to the market as a whole. Beta is fairly a commonly used measure of risk. It
basically indicates the level of volatility associated with the fund as compared to the
benchmark and is also known as "beta coefficient". So quite naturally the success of Beta
is heavily dependent on the correlation between a fund and its benchmark. Thus if the
fund’s portfolio doesn’t have a relevant benchmark index then a beta would be grossly
inadequate.

Beta can be calculated using regression analysis, and beta is the tendency of a security's
returns to respond to swings in the market. A beta that is greater than one means that the
fund is more volatile than the benchmark, while a beta of less than one means that the
fund is less volatile than the index. A fund with beta very close to 1 means the fund’s
performance closely matches the index or benchmark.

14
1.6 Objectives of the Study

• To analyze the risk and return pattern of selected securities of real estate
companies for Year 2008-09
• To compare the performance of the real estate stocks with that of the Nifty index.
• To analyze the performance of the real estate companies before and after
announcement of the interim budget 2009.

1.7 Need for the Study

Real state sector in considered one of the most booming sector but it is also the most
affected sector during last year sub prime crisis. Despite of effect of sub prime crisis
according to Asschom real estate sector will receive huge FDI in India. The real estate
sector is second only to agriculture in terms of employment generation and Five per cent
of the country's GDP is contributed to by the housing sector. In the next five years, this
contribution to the GDP is expected to rise to 6 per cent So this necessitates the need for
analyzing the risk and return relationship of the selected stocks of real estate sector.

1.8 Scope of Study

Study will be conducted to analyze the performance of the ten selected companies of real
estate sector for the Year 2008-2009 and compare the same with the performance of the

NIFTY in the Year 2008-2009. In addition to this the effect of interim budget 2009 on
real estate is also taken for study.

15
 Chapter 2

Review of Literature

Barry, Rodriguez and Lipscomb (1996) examined real estate in emerging markets as an
asset class. Based on data from 1989 to 1995 for a composite index, they report than real
estate in emerging markets provided diversification opportunities for common stock
portfolios and for real estate portfolios in developed markets.5 Due to limitations in their
data, they did not examine real estate diversification opportunities for investors within
any individual emerging market or how any individual emerging market’s real estate
investments may provide diversification opportunities to global investors.

Christopher B. Barry and Mauricio Rodriguez1 (1996) examined the investment

performance and diversification benefits of real estate investments in emerging capital
markets using property indices, and we contrast the risk and return characteristics of
those property indices with the broader equity markets in those countries and with real
estate and broader equity investments in developed markets. Real estate indices
experienced relatively high total risk and low returns, but only a few of theseindices
underperformed on a risk-adjusted basis. Real estate investments underperformed equity
investments in both emerging anddeveloped markets during the period examined.
However, only a few real estate indices significantly underperformed their BMI
counterparts on a risk-adjusted basis.

16
Barry, et al. (1997) document that the market capitalization of equity for emerging
markets tracked by the International Finance Corporation (IFC) grew from $167 billion in
1985 to $603.5 billion in 1990. The market capitalization of all emerging markets
(including some not previously tracked by the IFC) grew to more than $3 trillion by the
end of 1999. The market capitalization of developed markets experienced a little over a
three and three quarters-fold increase over the same time interval. Hence, the market
capitalization of emerging markets as a percentage of world market capitalization
increased during the past decade.

Lai and Wong (1998) examined and claimed that the root causes for understated
volatility is real estate market inefficiency. The link between market inefficiency and the
distortion in real estate risk measures, however, is yet to be demonstrated. Private real
estate returns are appraisal-based and appraisal practices bias against timely and adequate
updating of real estate valuation in response to new information . The effect of these
biases is called appraisal smoothing. The adequacy of this explanation is also studied by
them

Bulchandani (1998) andShrivakumar (1999). Kallberg, et al. (2002) in particular

examine real estate markets in Asia during 1992- 1998 and conclude that the 1997-1998
period reflected a “regime shift” in which real estate contributed much to the chaos in
those markets. They argue that increased risk and decreased diversification opportunities
for real estate resulted within the markets.

Quan and Titman (1999) examine real estate prices versus equity market values and
find relatively low contemporaneous correlations between equity market values and real
estate prices, but they find higher correlations across time and on a pooled basis.

17
Seiler, Webb and Myer (1999) reviewed literature related to real estate diversification
within mixed-asset portfolios and diversification within real estate portfolios. They
reviewed various real estate portfolio diversification mixtures and diff option adopted by
different counties real estate portfolio. Various issues were also discussed in their study
related to real estate investment. Also found that international real estate securities
provide some incremental diversification benefits over common stocks even if currency
risks are hedged.

Corgel and deRoos (1999) summarize the extraordinary risk and return relationships
found in private real estate markets that have long been uneasy to real estate researchers.
Private real estate returns have abnormally low coefficient of variation relative to other
risky assets, including real estate securities, and exhibit little correlation with stock-
market returns and returns on real estate securities

Hamelink et al. (2000) argue that the classification of property markets defines the
dimensions of market risk. This implies that the drivers of property-market performance
are influenced differentially by office, retail, and industrial markets. By diversifying
efficiently across those property types, commonality in returns is achieved. The same
applies for geographical or regional diversification and for combined property type and
area classifications.

Yuming Fu and Lilian K Ng (2000) investigated the price adjustment process in real
estate and stock markets. They showed that the speed of price adjustment to news affects
the volatility and correlation statistics of excess returns. We find that quarterly real estate
price captures only slightly more than half the effect of news, but quarterly stock price
captures the full effect of news. Slow price adjustment not only induces highly positive
auto correlation in real estate excess returns, but also dampens their volatility and
correlation with stock market returns. Their analysis identified a cumulative price

18
adjustment that is most informative of news in the real estate market. While preserving
the sample mean of real estate return series, the cumulative price adjustment recovers a
greater volatility and a higher correlation with stock market returns that would be
observed if real estate pricing were more efficient.

Brooks and Tsolacos (2001) employ a number of time series techniques to assess the
Predictability of securitized real estate returns in the U.K. They find that a VAR model
which incorporates financial spreads exhibits a better short-term out-of-sample
forecasting performance than unvaried time series models. However, after establishing
trading rules with the forecasts, no excess returns are found over a buy-and-hold strategy
once transaction costs are accounted for. In a follow-up paper, they compare the
Predictability of ARMA, VAR, and neural networks models in five European countries.
They conclude that whilst no single technique is universally superior, the neural networks
model generally makes the most accurate predictions for one-month horizons.

Ravi Bansal and Magnus Dahlquist (2002) showed that the cross-sectional differences
in the equity returns across sovereign economies is determined by two features—
systematic risk and a selectivity premium. We show that the selectivity premium captures
more than 1/2 of the average risk premium in emerging markets. The equity risk premia
in developed markets seems to be driven solely by systematic risk. The main economic
implication of this result is that after taking account of selectivity premium all
international equity returns reflect systematic risk, as predicted by theory. Empirical work
also shows that sovereigns that have better financial market reputations and trade more
actively have to pay a smaller selectivity premium. This empirical evidence lends support
to the view that both reputations and fear of trade sanctions are important in determining
the cost of equity borrowing for a sovereign nation.

19
Conover, et al. (2002) report that foreign real estate had a lower correlation with U.S.
stocks than did foreign stocks in a period encompassing the stock market crash of1987.
They conclude that the lower correlation from real estate (unlike the correlation Benefits
of foreign equities) was relatively stable through time, suggesting diversification Benefits
even during times of crisis.

Ling and Naranjo (2002) found international diversification benefits from commercial
real estate securities across several developed markets. Although their data included a
few emerging markets, they did not examine how these markets performed relative to
developed markets. They provided a calculation of the “cut-off” correlation in each
market. The cut-off correlation is the correlation above which real estate would have a
weight of zero in the country’s minimum variance combination of real estate property
and equity market index. To examine diversification opportunities available for global
equity portfolios, they provided the same metrics based on correlations between each
property index and the global BMI

Bond, Karolyi and Sanders (2003) examined risk and return characteristics of publicly
traded real estate indices in 14 developed markets and find evidence of a strong global
market factor in the returns of those markets. They took multiple factors and multiple
analysis method to find most suitable factor.

Ooi and Liow (2004) examine the risk-adjusted returns of real estate securities traded in
seven Asian markets. Panel regressions were conducted to shed light on how the firm-
specific attributes and time-varying factors affected the risk-adjusted returns of the real
estate securities across different markets and over time. They find that securitized real
estate in five of the East Asian economies underperformed the general stocks between
1992 and 2002.

20
Monteiro, Mohan & Rai, Rahul (2005) studies the Indian real estate sector and various
investment opportunities in the Indian real estate sector and the capital market
instruments that are presently available to local and foreign investors to enter this
emerging asset class from an international investor’s perspective

Ellis and Wilson (2005) find that portfolios constructed with neural networks techniques
consistently out-perform the market on both a nominal and risk-adjusted basis. In the
direct real estate literature, the performance of neural networks is less conclusive. The
quality of the house price predictions obtained with this technique is supported by some
researchers but criticized by others. Their results indicate that the best predictions are
obtained with neural networks models and especially when the model includes stock,
bond, real estate, size, and book-to-market factors.

Liow and Sim (2006) examine the risk and return profile of Asian property securities
from an American investor's point of view. Their results indicate that Asian property
securities markets had not produced high levels of compound returns relative to the US
REIT and UK real estate securities markets In addition, Asian property securities
experienced a higher level of volatility compared to their USA and UK counterparts.

Camilo Serrano & Martin Hoesli (2007) examined whether the predictability of
securitized real estate returns differs from that of stock returns. It also provides a cross-
country comparison of securitized real estate return predictability. Empirical distributions
of the prediction errors reveal differences in predictability between securitized real estate
and stock returns. So is the case when excess returns of an active strategy over a passive
investment are used in the analysis. The latter results, however, allow for the economic
significance of the results to be assessed. These analyses show that the maturity of the
securitized real estate market plays an important role in the predictability of its returns. In
particular, we find that in countries with established REIT regimes, securitized real estate
returns are more predictable than stock returns as the rental focus of REITs generates

21
more predictable income returns. Stated differently, tax transparency is likely to lead real
estate securities to behave more like the underlying real estate assets. This finding is
confirmed with the cross-country comparisons of securitized real estate return
predictability.

Kim Hiang Liow(2008) examined that Asian real estate and equity maxima and minima
return series are characterized by a fat-tailed Fréchet distribution. The frequency and
severity of extreme Asian real estate returns are greater than their European and North
American counterparts. Securitized real estate markets are riskier than the broader stock
markets before and during the Asian financial turmoil. In contrast, many stock markets
become riskier after the financial crisis with their VaRs higher than the equivalent VaR
estimates for the real estate series. International real estate portfolio risk management
should include both extreme risks and standard deviations. Accordingly, global investors
should be even more cautious in formulating their diversification strategies since gains
from diversification can be reduced significantly by the severity of extreme return levels.

Vandana &Komal (2009) studied the issues concerned with real estate investment sector
in India. Investment on real estate in India and the trends in the concerned industry. They
studied the fundamental factors affecting the real value like demand, supply, property,
restrictions to use and site characteristics. Also explained the causes and the constraints to
the present real estate boom respectively in India and future prospects of real estate in the
country. They found As the GDP increases the real estate prices also increases because
there is a high degree of positive correlation between the real estate prices and GDP. Real
estate prices also increases with increase in the per capita income as there is high degree
of positive correlation between these two also. The infrastructure of India is also growing
day by day so it adds to the better facility to different sectors which affect the real estate
prices.

22
Kim Hiang Liow & Alastair Adair (2009) studied the risk-return performance for all 13
Asian as well as the US and UK real estate securities markets and compared them. They
found prior inferior performance for many Asian real estate securities markets might
unlikely to repeat in future performance, it has provided some interesting and important
insights into the dynamics and performance of Asian real estate securities. A clear picture
emerges from study is that over the last ten years, Asian real estate securities have failed
to contribute to mixed-asset portfolios of Asian shares, bonds and cash in terms of
improved risk-return performance and enhanced portfolio diversification benefits. This
was mainly due to the real estate securities' inferior investment performance affected by
the Asian financial crisis and reasonably high real estate securities/common stock
correlations in several Asian countries.

23
 Chapter 3

Research Methodology

3.1 Research methodology:

The study will be carried out to compare the selected real estate securities with the Nifty index
using their returns, and to analyze the risk involved in each company in the sectors and risk
involved in the sector for investment. Thus the study undertaken is Descriptive study.

3.2 Sample Size

Real estate sector is selected for the study and ten companies from sector are selected for study

• DLF Limited
• Unitech Limited
• Indiabulls Real Estate Limited
• Parsvnath Developers Limited
• Ansal Properties & Infrastructure Limited
• Mahindra Gesco Developers Limited
• Sobha Developers Limited
• Phoenix Mills Limited
• Peninsula Land Limited
• Akruti Nirman Limited

3.3 Data Collection

The data for study is mainly secondary data and it is to be collected form capital line
database and internet

24
3.4 Tools for Analysis

 Beta
 Correlation
 Regression
 Paired sample t test
 Descriptive statistics
o Mean
o Standard deviation
 Return
Return will be calculated using the formula

Return = Yesterday’s share price – Today’s share price

Yesterday’s share price

25
3.5 Limitations of the study:

The limitations involved in this study are

• In Real estate sector only ten companies were selected for the study.

• The performance of the company securities were studied only for a year from 1st
April 2008 to 31st March 2009.

• Effect of budget is seen just one moth before and after Budget

26
 Chapter 4

Analysis and Data Interpretation

4.1 Analysis of Risk & Return

Table 4.1 a Monthly Return of the selected securities in the Real estate sector

Month India DLF Mahindra Shobh Akruti Phoenix Ansal Unitec Penin Perve
bulls a h
-0.62 -0.65 -1.32 -.0.102 -1.82 -0.18 -0.1 -0.79 -0.82 -0.62
Apr-08
0.6 0.89 -0.87 1.02 0.56 0.69 0.57 0.66 1.22 0.6
May-08
2.58 1.78 1.78 2.67 1.62 3.56 1.67 0.805 2.07 2.56
Jun-08
0.44 -1.29 -0.5 0.3 -0.51 -1.14 0.019 0.104 -1.25 -0.44
Jul-08
-0.24 0.11 -0.06 -0.26 -0.887 -0.03 -0.43 0.255 -0.23 -0.24
Aug-08
2.29 1.5 1.45 2.62 0.106 1.26 0.83 1.87 1.68 2.29
Sep-08
0.99 1.99 2.63 1.87 0.756 4.87 3.79 1.93 3.69 0.99
Oct-08
1.024 0.32 0.87 0.984 0.03 -1.39 1.86 0.031 0.86 1.02
Nov-08
-1.86 -1.94 -0.62 -0.68 0.18 -0.95 -1.07 -0.56 1.82 -1.86
Dec-08
0.83 2.11 1.52 0.83 -1.26 0.49 2.11 0.19 0.44 0.28
Jan-09
1.12 0.65 1.57 0.422 -0.49 1.06 0.131 -2.17 0.62 1.12
Feb-09
-0.47 0.058 -1.83 0.051 -1.23 -1.11 -0.51 -0.48 -0.6 -0.47
Mar-09

27
 Returns of real state companies

6
India bulls
5
DLF
4 Mahindra
3 Shobha
2 Akruti
Reurn

1 Phoenix
0 Ansal

-1 Unitech

De 0 8
Ju 8

Fe 9

M 9
9
O 8

Ja 8
Au 08

Se 08
M 08

Ju 8

No 8

0
-0
0
0

0
-0

0
-0
v-
l-
n-

n-
b-
c-
Penin
g-

p-
r-

ar
ay

ct
Ap

-2
Perve
-3
Date

Chart 4.1 a Real estate sector company returns

28
 Table4.1 b1: Risk analysis of Real estate sector Companies

Month DLF India Bulls Mahindra Unitech Akruti

SD Beta SD Beta SD Beta SD Beta SD Beta

2.11 0.43 2.47 0.14 2.19 0.02 2.39 0.1 3.93 0.12
Apr-08
1.61 0.64 2 0.11 2.62 0.16 1.56 0.43 1.74 0.6
May-08
2.94 0.56 3.65 0.3 3.2 0.3 2.36 0.71 2.86 0.43
Jun-08
4.48 0.65 6.64 0.37 4.36 0.55 3.44 0.33 4.19 0.54
Jul-08
2.77 0.61 4.7 0.32 2.23 0.43 1.5 0.3 2.6 -0.1
Aug-08
3.28 0.76 4.95 0.48 2.78 0.47 3.7 0.1 5.15 0.36
Sep-08
7.04 0.71 9.59 0.45 6.68 0.59 5.34 0.62 4.66 0.62
Oct-08
5.75 0.58 6 0.43 3.78 0.41 3.04 0.41 3.1 0.35
Nov-08
5.47 0.4 5.51 0.45 3 0.52 2.52 0.16 2.29 0.6
Dec-08
4.62 0.51 6.01 0.44 3 0.52 3.19 0.6 3.66 0.25
Jan-09
4.2 0.22 3.62 0.45 2.47 0.44 11.47 0 3.6 0.11
Feb-09
3.68 0.43 3.2 0.46 4.7 0.34 0.67 0.67 10.8 0.007
Mar-09

Table4.1 b2 : Risk analysis of Real estate sector Companies

29
Month Phoenix Ansal Shobha Penins Parvesh

SD Beta SD Beta SD Beta SD Beta SD Beta

2.03 0.44 0.17 0.13 1.35 0.45 2.14 0.21 2.13 0.46
Apr-08
1.91 0.38 1.64 0.43 143 0.49 1.98 0.49 2 0.45
May-08
3.24 0.3 2.12 0.5 2.65 0.58 3.25 0.46 3.65 0.45
Jun-08
5.08 0.29 3.57 0.63 3.91 0.68 5.02 0.53 5.32 0.47
Jul-08
3.38 0.29 3.37 0.35 2.38 0.49 2.73 0.56 4.7 0.45
Aug-08
6.26 0.38 3.12 0.54 2.92 0.49 3.23 0.63 4.95 0.43
Sep-08
4.43 0.42 5.46 0.65 5.75 0.53 7.11 0.66 9.5 0.48
Oct-08
3.3 0.27 4.91 0.48 3.94 0.67 5.39 0.42 6.07 0.32
Nov-08
3.18 0.25 2.84 0.11 3.2 0.6 3.34 0.47 5.52 0.57
Dec-08
2.24 0.42 4 0.46 3.65 0.61 3.39 0.56 6.01 0.3
Jan-09
2.34 0.61 3.73 0.09 1.9 0.29 2.46 0.16 3.62 0.11
Feb-09
2.9 0.25 2.4 0.56 2.3 0.64 2.68 0.43 3.21 0.23
Mar-09

4.2 The Relationship of the Nifty with the Selected Securities in the Real Estate
Sector

Hypothesis

30
Ho: There is no significant relationship between the selected securities return and Nifty return.

Ha: There is a significant relationship between the selected company securities return and Nifty
return.

Table 4.2:- Correlation between the selected company securities return in the power sector and
Nifty return.

Comp. India DLF Mahind Shobh Akrut Phoen Ans Unitec Peni Perv
bulls ra a i i a

Nifty 0.67 0.74 0.56 0.65 0.28 0.42 0.54 0.24 0.68 0.67

Sig yes yes yes yes yes yes yes yes yes yes

p-level 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

4.3 The impact of selected securities return in real estate sector on the nifty return

Hypothesis

Ho: There is no significant impact of the return of the selected securities on the nifty
return

31
Ha: There is a significant impact of the nifty return of the selected securities on the Nifty
return.

Table 4.3 An ANOVA table for Nifty return and real sector companies returns

Sum of Mean
Model df F Sig.
Squares Square
Regression 781.661 1 781.661

204.97
India bulls Residual 919.029 241 3.813
8
.000a

Total 1700.691 242

Regression 952.381 1 952.381

306.72
DLF Residual 748.309 241 3.105
3
.000a

Total 1700.691 242

Regression 551.027 1 551.027

Mahindra Residual 1149.663 241 4.77 115.51 .000a

Total 1700.691 242

Regression 734.7 1 734.7

183.29
Shobha Residual 965.99 241 4.008
7
.000a

Total 1700.691 242

Regression 135.146 1 135.146

Akruti Residual 1565.545 241 6.496 20.804 .000a

Total 1700.691 242

Regression 310.371 1 310.371

Pheonix Residual 1390.32 241 5.769 53.8 .000a

Total 1700.691 242

Regression 501.58 1 501.58

100.80
Ansal Residual 1199.111 241 4.976
9
.000a

Total 1700.691 242

32
 Regression 106.046 1 106.046

unitech Residual 1594.645 241 6.617 16.027 .000a

Total 1700.691 242

Regression 789.313 1 789.313

208.72
Peninsuela Residual 911.378 241 3.782
2
.000a

Total 1700.691 242

204.97
Preversher Regression 781.661 1 781.661
8
.000a

Residual 919.029 241 3.813

Total 1700.691 242

Table4.3 b - R square table of NIFTY return

Adjusted R Std. Error of the

Model R R Square
Square Estimate
Indiabulls 0.678 0.46 0.457 1.9527

DLF 0.748 0.56 0.558 1.7621

Mahindra 0.569 0.324 0.321 2.1841

Shobha 0.657 0.432 0.43 2.002

33
 Akruti 0.282 0.079 0.076 2.5487

Phoenix 0.427 0.182 0.179 2.4018

Ansal 0.543 0.295 0.292 2.2305

Unitech 0.25 0.062 0.058 2.5723

Penin 0.681 0.464 0.462 1.9446

Total 0.678 0.46 0.457 1.9527

Table 4.3 c Coefficient table for Nifty return and Real sector companies’ return

Unstandardized Standardized Sig

Model Coefficients Coefficients t

B Std. Error Beta

Indiabulls
0.265 0.019 0.678 14.317 0
DLF
0.362 0.021 0.748 17.514 0
Mahindra
0.338 0.031 0.569 10.748 0

34
Shobha
0.47 0.035 0.657 13.539 0
Akruti
0.124 0.027 0.282 4.561 0
Phoenix
0.241 0.033 0.427 7.335 0
Ansal
0.344 0.034 0.543 10.04 0
Unitech
0.113 0.028 0.25 4.003 0
Penin
0.37 0.026 0.681 14.447 0
Presv
0.265 0.019 0.678 14.317 0

Interpretation:

The correlation factor was significant for all the ten real estate companies return to Nifty
return. They show a positive correlation ANOVA significance value of 0.000 for all the
selected companies in the sector proves that the model taken for study was fit at a 95%
level of confidence. The R square value was less than 0.5 for all the selected companies
in the sector. This shows that the returns of companies would not have affected the Nifty
return very strongly as individuals [refer table 3.1.3.b]. Together they have an impact on
the Nifty return.

The overall beta for the companies were found to be 0.678, 0.748, 0.569, 0.657, 0.282,
0.427, 0.543.0.250.0.681, 0678 for India bulls, DLF, Mahindra, shobha, akruti, Phoneix,
Ansal ,Unitech, Peninsula, Pervasher return respectively [refer table 3.1.3.c]. All the
companies were found to be less risky to invest.

For the India bulls, the months of May, June, November and February were moderate
risky period for investors as the beta value were higher in those months. Considering the
beta value for the months we can see that the highest risk was in the month of March
2008. We can also see that the SD was also high during the months of May and October

35
2007 this shows that the returns where highly volatile in those months. SD for the Ansal
in the month of May and October are critically higher than nifty returns overall SD, this
shows that the investors cannot expect the same return as of nifty return. The volatility
was very high for the Ansal securities in those months; also the securities had a high beta
value in the month of March 2009. Day trading would be suitable in the months other
than May, September, February. The volatility was high in the months of October. The
overall beta value of the Ansal properties share return for the year is at a moderate risk
level.

For the Mahindra , The overall beta was 0.8 which shows that the company mahindra
developers industries was a moderately risky company for investors to invest. As beta
value increases risk increases. The beta values show a moderate risk in the months of
May, July, September. In these months of the year the beta value is above 0.7 near to 1
where beta value of one declares high risk position. This shows at those months the
volatility of the shares was high compared to Nifty. High beta value is also due to
volatility. Volatility in share price occurs due to news or results. The main reason for the
share value to have high volatility was the news about fall in wall street and global
markets equity shares. The volatility in the month of September may have been due to
the release of second quarterly result. In the month of August JP Hydro declares the
interim dividend at 7.50%.The volatility may be due to the result, there was a decrease in
the EPS. Taking the overall beta value of the company the company was a moderately
risky company for the investors to invest.

For Ansal Properties and Infra, The overall beta was 0.8997, which shows that Ansal
Infra was a highly risky company to invest in. The beta values were in the range of
moderate risk in the months of , August, September, and October. And the beta values
were in the range of high risk in the months of Oct 2008 and January 2009. As beta
increases towards one the volatility of the security is correlating to the volatility of the
market which is very risky for an investor. The SD was high in the months of October

36
2008and January 2009, where in the month of October 2008 and January 2009 the beta
was also high. As SD increases the volatility of the return increases, which is the cause of
volatility in the share price. In the months of October 2008 and January 2009 the
volatility would have been higher than any other month of the year. The reasons for
volatility in the market are news and results. The volatility in the months of October
should have been the effect of the news about Ansal Properties gives Final dividend @
10% for the year. There was no significant news other than regular AGM proceedings
submission. Still the volatility was high in January.

For Shobha , The overall beta was o.378, That shows that Shobha Infra has risk of
investment. The SD of all the months of the year are not significantly higher than the SD
of overall nifty return for the year, this also supports the fact that GMR Infra was of
medium risk for investors to invest. The beta value was higher than 1.0 in the months of
May, June, July, August, September, October, January, February, and March . Those
months were of highly risk. The reasons for volatility in the market are news and results.
The high volatility in the month of January should have been due to the announcement of
approval for allotment of equity shares to the employees of the GMR Infra under the
Employees Stock Option Scheme (ESOS)". Also in the month of July the company
declared split, through split the companies’ equity face value is changed by Rs 2. In the
month of October the SEBI had announce to ban on P Notes, due to announcement the
market was gone down.

For Pheonix , The overall beta was 0.5623, which shows that pheonix Infra was a
moderately risky security to invest in. The beta values were higher than 0.6 in the months
of May, June, July, January and March. Those months are considered as moderately
risked for investment. The volatility and down fall would have been high in those months
and in the month of June the security return would have been almost equal to nifty
return. The SD for all the months was not significantly higher than the overall SD of the
nifty return. The SD was quite high in the months of July. The volatility would have been

37
high in those months. The high volatility in the month of December should have been due
to the news of the company received FDI of Rs15 Crore. In the month of January,
February, April, May and June there was only news about buying and selling shares and
allotment of equity shares for ESOS.

For penininsula land, The overall beta was 0.650, which shows that peninsula land Infra
was a highly risky security to invest in. For most of the months in the year 2008-2009 the
beta value was above 0.6.In the month of September and January the beta value was
2.180 and 2.355 respectively. Only in the months of May it would have been safe to
invest, in all the other months the risk was moderate. In the month of December the risk
was high compared to other moderate risk months. The returns in the month of December
would have been almost equal to the returns of the market. And the market is volatile due
to the company decision; the company had undergone the MOU with the Gulftaner
company ltd UAE to cooperate the variety of port and transportation Project.

For Akruti , The overall beta was 0.388, which shows that Akriti Infra was a moderately
risky security to invest in. The beta value was high only in the months of July, the beta
was 1.5478. In July months would have been of highly risk to invest in. As risk decreases
the returns earned also decreases. The returns earned by an investor in Reliance Infra
would have been less than the returns he could have earned if invested in any of the other
securities we have selected for the study in the Infrastructure sector. The SD was
significantly high in the month of September. In the month of April the company had
announced final Dividend of 53%.

For Unitech, the overall beta was 1.4890 which shows that Unitech was a risky security
to invest in. The beta value was high in the months of June, January, February and
March the beta was 1.7391, 1.846, 1.779 and 1.428 respectively. In January months
would have been of highly risk to invest in. As risk decreases the returns earned also

38
 decreases. The returns earned by an investor in Unitech would have been less than the
returns he could have earned if invested in any of the other securities we have selected for
the study in the Infrastructure sector. The SD was significantly high in the month of
August.

For the Pershavnath developers the overall beta was 0.470 which shows that the company
was a highly risky company for investors to invest.. The SD for all the months was not
too higher than the overall SD of the Nifty return. The value of the returns varies as the
Nifty return varies for the year. The beta value was high in the months of October,
November, December, January and February. In those months the beta value is higher
than 1.1 it would have been of highly risk to invest in the months of October, November,
December, January and Feburary. The volatility would have been higher than the
volatility of the Nifty. The volatility in the share price in the month of September may be
due to the MOU with BHEL. The fluctuation in the share prices in the month of
December due to government decision and quarterly result of the company. In third
quarterly result of the company net profit is 1,779.90 crore .It is around 200 crore higher
than previous result.

For the The overall beta value shows that the company was a Highly risk company for
investors to invest. The SD for every month was very high than the overall SD of nifty
return. The SD was high only in the months of October and January. The beta value is
high in the months of October, and January. Those are the months with high risk for the
year. Months of April had a low beta value so those months should have been of low risk.

4.4 Dependance of Nifty Retun on the Real Estate Sector Company Returns

Table 4.4a Regression between nifty return and highly correlated company returns in real

estate sector

Model Unstandardized Standardized Beta t sig

39
 Coefficients Coefficients
Indiabulls 0.265 0.019 0.678 14.317 0
DLF 0.362 0.021 0.748 17.514 0
Penin 0.37 0.026 0.681 14.447 0
Presv 0.265 0.019 0.678 14.317 0
a. Dependent Variable: nifty

Table 4.4.b R square table for highly correlated companies with Nifty return

Adjusted R Std. Error of the

Model R R Square Square Estimate
Indiabulls
0.678 0.46 0.457 1.9527
DLF
0.748 0.56 0.558 1.7621
Penin
0.681 0.464 0.462 1.9446

40
Presv
0.678 0.46 0.457 1.9527

Interpretation

The dependence of the Nifty return to highly correlated company returns can be given by

above tables

The R square value of more then 0.4 proves that the India bulls, DLF, Peninsula and

Pervesrnath return have a good impact on the Nifty return.

4.5 Analysis of the Performance of the Power Companies before and After the

Announcement of Budget:

Paired sample t test

Hypothesis

Ho: there is no significant impact of the announcement of budget on the returns of

Indiabulls, DLF, Mahindra, Ansal, Shobha, Phoenix, Ansal, Peninsula, Perveshernath,

Unitech before and after the budget.

Ha: there is a significant impact of the announcement of budget on the returns of

Indiabulls, DLF, Mahindra, Ansal, Shobha, Phoenix, Ansal, Peninsula, Perveshernath,

Unitech before and after the budget.

41
Table 4.5 a- SD and mean before and after the budget for the power sector companies

return

Before After
COMPANY
Mean SD Mean SD

Indiabulls 3.8731 8.1178 0.2803 -0.5325

DLF 4.7533 5.8664 -2.1169 -0.8362

Mahindra 6.093 3.1818 -1.5255 -0.7878

42
 Shobha 2.011 4.446 -0.8316 0.1045

Akruti 5.0979 4.3877 -1.2636 -0.9423

Phoenix 3.636 3.8686 0.495 1.4366

Ansal 2.6861 4.3746 -2.1164 0.5577

Unitech 6.7948 3.68843 0.1981 0.4865

Penin 3.5018 4.0203 0.4422 -1.0117

Total 3.8731 8.1778 0.2803 0.53262

Table 4.5 b paired t test table for real estate companies before and after Budget

Paired Samples Test

Paired Differences
95%
Confidence
Interval of the
Std. Difference
Std. Error Sig. (2-
Mean Deviation Mean Lower Upper T df tailed)
Pair 1 india bulls 1 - India
af 0.9567 9.838 2.199 -3.647 5.5613 0.435 19 0

43
Pair 2 DLF be - DLf af
3.0936 7.847 1.7547 -5.79 6.7664 1.763 19 0
Pair 3 Mahidra BE -
Mahindra af 3.55 6.578 1.471 0.4716 6.629 2.414 19 0
Pair 4 Akruti Be - Akruti -
af -1.614 1.8157 4.0601 8.6593 8.3366 -0.04 19 0
Pair 5 Shobabe - Shobha
af 9.7256 5.0203 1.1225 -1.377 3.3221 0.866 19 0
Pair 6 Phenoix Be -
Phoenix af 2.2628 4.446 9.9416 1.8203 4.3436 2.276 19 0
Pair 7 unitech be - -
Unitec af 7.8824 8.0466 1.7992 2.9777 4.5542 0.438 19 0
Pair 8 Ansal be - Ansal af
2.7108 5.5305 1.2366 1.2243 5.2991 2.192 19 0
Pair 9 Penin Be - Penin af -
1.4785 5.8318 1.304 1.2508 4.2079 1.134 19 0
Pair 10 Preseve be - -
Preves af 9.5671 9.8385 2.1999 3.6479 5.5612 0.435 19 0

Interpretation

In all the cases the SD before the budget is lower than the SD after the budget. This was

due to the investor’s perception towards the budget. Due to the perception towards the tax

reforms and other aspects of the budget the buying and selling of shares increases

increasing volatility, thereby increasing the SD of the returns. Later after the budget there

is no as much volatility as before budget. In real estate sector securities Akruti had

effected through budget. This shows that the securities of akruti had impact due to the

budget. The mean is positive for Akruti before the budget, but the mean after budget is

negative. Through the budget there is no any significant on Ansal, unitech, India bulls,

DLF. The Paired sample T test result shows there was no significant impact of budget on

the returns of the securities of Ansal, unitech, India bulls, DlF companies. So null

hypothesis is accepted. But there are some changes after and before budget.

44
 Chapter- 5

Findings and Recommendation

5.1 Findings

 From studying the performance of the 10 companies in the two sectors for the

year 2008-2009. The Power sector was found to be the most risky sector to

45
 invest in. As the risk was high the returns gained by the investors would have

been huge.

 . Most of the companies selected for the study in the Infrastructure sector had

a beta in the less risky range, a beta less then 1. Some companies have their

beta very low making the investment in the company a unrisky one.as

individual companies are affected less as impact is not seen to fast.

 The effect of announcement of Budget on the company securities was studied

by comparing the means of the returns of the company securities before and

after the announcement of Budget using Paired sample t test.

 From comparing the mean and standard deviation for the twelve companies in

two sectors before and after the announcement of budget in the financial year

2008-2009, it was found that the announcement of Budget had no immediate

effect on the company securities in sector. The data used to analyze the effect

of Budget was the share price of the companies every day for one month

before the Budget and one month after the budget. The budget would have had

an effect for sure on the share price. But the analysis proves that there was no

effect. The study considered only the fluctuation in the share price for one

month after the Budget. The effect on share price due to the announcement of

the Budget was not influence at that stage. It would have taken some time to

have a significant impact on the share price of the companies return.

 From the analysis we can see that some companies had increase in the

standard deviation of their returns, some companies had decrease in the

standard deviation of their returns. But most of the companies did not have

46
 significant decrease or increase in their standard deviation. this supports the

results of the paired sample t test results.

 From the study we can see that the beta value is high for most of the

companies real estate sector, month of October when effect of crisis is seen

 In the Real estate sector the standard deviation was high for most of the

companies in the month of October. Day traders could have made good profit

due to the fluctuation in the price in the month of October. But the standard

deviation was highest in the month of September for India bulls and DLF. The

SD was between7-9.

 Unitech was the company under study which had the highest beta of 0.7. This

makes company the most risky company to invest in, among the companies

which were taken for the study.

 We can infer from the study that the Nifty index was dependent on real estate

companies collectively then individually.

 The performance of the selected companies in the Real Estate sectors were

studied and compared with the performance of Nifty index. The returns for the

selected companies were analyzed. The risk involved in investing in the

sectors was studied. The risk factor beta was calculated for all the companies

selected for study and the calculated beta was used to differentiate risky and

non risky companies. The impact of the company securities on the Nifty Index

was assessed. The effect of price fluctuation on the returns of the company

securities was also studied. The performance of the selected company

securities before and after the announcement of budget was also analyzed.

47
5.2 Recommendations

 Assuming that the market and the companies’ securities will perform in the

different way as they performed in the year 2008-2009 during financial crisis.

Risk adverse investors must not invest in the Real estate sectors at this moment.

These risk adverse investors have to wait for some time as market conditions are

48
 improving due to various steps taken by Govt. and market is responding

positively to it.

 Risk willing investors can invest in the real estate sector and as the risk involved

is high the returns earned will also be high. But conditions are not according s

financial crisis affected global market.

Bibliography

• A K Vashisht & RK Gupta,”Investment Management and Stock Market”(Deep

and Deep Publication Pvt Ltd,Delhi)

• Bansal.R and Dahlquist .M (2002) , Expropriation Risk and Returnin Global

Equity Markets. Journal of International Economics 51, 115–144.

49
• Barry, Christopher B., John W. Peavy, and Mauricio Rodriguez, Emerging Stock

• Barry, Christopher B., Mauricio Rodriguez, and Joseph Lipscomb,

“Diversification Potential from Real Estate Companies in Emerging Capital
Markets,” Journal of RealEstate Portfolio Management, Volume 2, Number 2,
1996, 107-118.

• Bond, Shaun A., G. Andrew Karolyi, and Anthony B. Sanders, “International

Real Estate Returns: A Multifactor, Multicountry Approach,” Real Estate
Economics, Volume 31, Number 3, 2003, 481-500.

• Brooks, C., & Tsolacos, S. (2001). Forecasting real estate returns using financial
spreads. Journal of Property Research, 18(3), 235-248.

• Bulchandani, Ravi, “Asian Currencies: Crisis, Contagion, and Containment”

EmergingMarkets Quarterly, Volume 2, Number 1, 1998, 8-13.

• Conover, C. Mitchell, H. Swint Friday, and C. F. Sirmans, “Diversification

Benefits from” Journal of Real Estate Portfolio Management, Volume m 8,
Number 1, 2002, 17-26.

• Corgel, J.B. and J.A. De Roos. 1999. Recovery of Real Estate Returns for
PortfolioAllocation. The Journal of Real Estate Finance and Economics 18(3):
279-296.

• Donald R Cooper and Pamela S Schindler, “Business Research Methods”,( Ninth

edition ; New Delhi : Tata McGraw-Hill ,2006)

50
• Ellis, C., & Wilson, P.J. (2005). Can a neural network property portfolio selection
process outperform the property market? Journal of Real Estate Portfolio
Management, 11(2), 105-121

• Foreign Real Estate Investments,” Journal of Real Estate Portfolio Management,

Volume8, Number 1, 2002, 17-26.

• Fu.y and Ng .L 2000. Market Efficiency and Return Statistics: Evidence from Real
Estate and Stock Markets Using a Present-Value Approach. Real Estate
Economics 27(2): 183-207.

• Hamelink, F., Hoesli, M., Lizieri, C., MacGregor, B. (2000), "Homogeneous

commercial property market grouping and portfolio construction in the United
Kingdom", Environment and Planning A, Vol. 32 pp.323-44.

• I M Pandey, “Financial Management” , ( Ninth edition; New Delhi: Vikas

Publishing House, 2007)

• James C. Van Horne and John M. Wachowicz Jr, “ Fundamentals of Financial

Management “, ( Eleventh edition ; New Delhi: Prentice-Hall of India ,2006)

• Kim Hiang Liow “Extreme returns and value at risk in international securitized
real estate markets” Journal of Property Investment & Finance, Volume 26
,Number 5,2008, 418-446
• Lai, T.Y. and K. Wong. 1998. Appraisal Smoothing: The Other Side of the Story.
Real Estate Economics 26(3): 511-535.
• Ling, David and Andy Naranjo, “Commercial Real Estate Return Performance” A
Cross- Country Analysis,” Journal of Real Estate Finance and Economics,
Volume 24, Numbers 1 and 2, 2002, 119-142.

51
• Liow, K., Sim, M.C. (2006), "The risk and return profile of Asian property
markets", Pacific-Rim Property Research Journal, Vol. 12 No.3, pp.283-310.
Markets: Risk, Return and Performance, The Research Foundation of the Institute
Chartered Financial Analysts, Charlottesville, VA, 1997.
• Liow.K. J , Adair A(2005) “Do Asian real estate companies add value to
investment portfolio” Real Estate Economics 26(3): 511-535.
Markets: Risk, Return and Performance, the Research Foundation of the Institute
of Chartered Financial Analysts, Charlottesville, VA, 1997
• Monteiro, Mohan & Rai, Rahul (2005). The Indian Real Estate Sector:
Opportunities for Australia, September 2005.
• Ooi, J., Liow, K.H. (2004), "Risk-adjusted performance of real estate stocks:
evidence from developing markets", Journal of Real Estate Research, Vol. 26
No.4, pp.371-95.
• Quan, Daniel C. and Sheridan Titman, “Do Real Estate Prices and Stock Prices
Move Together? An International Analysis,” Real Estate Economics, Volume 27,
Number 2, 1999, 183-207.
• R.Nandagopal, K.Arul rajan and N. Vivek , “Research Methods in

Business”, ( First edition; New Delhi : Excel books, 2007)

• Seiler, Michael J., James R. Webb, and F.C. Neil Myer, “Diversification Issues in
Real Estate Investment,” Journal of Real Estate Literature, Volume 7, Number 2,
1999, 163-179.
• Serrano.C , Hoesli M (2008) “Are Securitized Real Estate Returns more
Predictable than Stock Returns” JEL Classifications: C53, C22, G2
• SP Gupta, “Statistical Methods”(34th edition; Sultan chand and sons)

•
• Vandana & Komal “Prospects & Problems of Real Estate in India” International
Research Journal of Finance and Economics, Issue 24 (2009)

Websites

52
• http://www.economywatch.com/sector-watch/realestatesectorindia

• http://www.directories-today.com/estate.html

• http://www.ficci.com/studies/RealEstate.pdf

• www.indianground.com/real_estate_india.aspx -
• www.nseindia.com
• www.sethassociates.com/Real_estate_sector_in_india.php
• http://www.sethassociates.com/Real_estate_sector_in_india.php

53
 Appendix

Abbreviations:

o B Beta

o df Degree of freedom

o SD Standared deviation

o Sig Significanc
o Std error Standared error
o DLF DLF Limited
o Unitech Unitech Limited
o Indiabulls Indiabulls Real Estate Limited
o Pervesh Parsvnath Developers Limited
o Ansal Ansal Properties & Infrastructure Limited
o Mahindra Mahindra Gesco Developers Limited
o Shobha Shobha Developers Limited
o Phoenix Phoenix Mills Limited
o Akruti Akruti Nirman Limited
o Penin Peninsula Land Limited

54