Housing finance stocks off highs, correction necessary for a bounce-back

Most of the Indian housing finance stocks are sitting at their major support levels after posting almost a subdued performance throughout November 2017. The government’s move to increase the carpet area of houses eligible for interest subsidy under CLSS for middle income earners resulted in provisional improvement in share prices. However, overall sluggishness in realty sector post RERA implementation was responsible for the listless movement of housing finance stocks. Nevertheless, these stocks have not seen any sharp downside movement so far after hitting their respective peaks.

HDFC, the housing finance company with the highest market cap, has been trading in a rectangular pattern. After correcting from its multiple resistance at Rs 1800-1804 levels, the stock has fallen up to its major trendline support at Rs 1650 level. LIC Housing Finance, the second frontliner, has been trading with lower tops and lower bottoms since June 2017 and has just hit its major resistance-turned-support at Rs 570 level. Even the third housing finance giant, Indiabulls Housing Finance, has witnessed downbeat for six consecutive weeks after hitting a double top at Rs 1373 level, which was its all-time high.

Nevertheless, the housing finance stocks are currently in correction mode as all these stocks have seen continuous upside from late December 2016 up to August/September 2017. Going forward, we may see some more correction for periods ranging from few sessions up to few months for some companies, but with an assurance of a bounce back. Modi government’s spending on infrastructure and Housing for All projects would take the sector to new highs. We for now do not see any disruption in the growth for at least the next five years.