HSBC Picks Top Realty Stocks

Indian real estate stocks have underperformed despite strong operational performance from developers. However, HSBC believes patient investors could be rewarded as the sector moves closer to a phase of stronger cash-flow generation. The brokerage retained its ‘Buy’ ratings on Godrej Properties, DLF, Prestige Estates Projects, Oberoi Realty, and Sobha, with implied upsides ranging from 25% to 68%. HSBC noted that while the 16 developers under its coverage delivered around 20% compound annual growth in pre-sales over the past two years, real estate stocks declined 22% during the same period. The brokerage attributed the disconnect to reduced foreign investor participation, concerns over interest rates, a shift towards lower-beta sectors and technology-related themes, and the market’s increasing focus on free cash flow generation. The health of the residential property market remains strong despite concerns around geopolitical developments and rising construction costs. Listed developers continue to operate with comfortable balance sheets and low leverage while maintaining strong sales momentum. Unsold inventory levels remain manageable, and developers continue to guide for healthy growth. HSBC said the sector is approaching a sweet spot of free cash flow generation, which is expected to occur in FY28. Developers have been reducing their guidance for business development as they have built large future project pipelines. Pre-sales momentum remains, and large project completions are due in FY28. The brokerage retained its ‘Buy’ rating on Godrej Properties Ltd. with a target price of Rs 2,900, implying an upside of 67.6%. Godrej Properties delivered pre-sales of Rs 342 billion in FY26, up 16% year-on-year, and the highest reported by any listed real estate developer in India. Management guided for pre-sales of Rs 390 billion in FY27, representing another 14% increase. HSBC also maintained its ‘Buy’ rating on DLF Ltd. with a target price of Rs 920, implying an upside of 55.4%. DLF reported FY26 pre-sales of Rs 200 billion and guided for a similar increase in FY27. The brokerage prefers Godrej Properties for its diversification and decentralised business model. HSBC believes that existing investors will likely wait out till FY28, given the comfortable balance sheets and low leverage of listed developers, which allows them to reduce their cost of borrowing.