The recent swings in the equity markets rattled Purvankara Projects’ plans to go public and have shaken investor confidence in the realty market. The Bangalore-based realty firm had wanted to raise Rs 1,130 crore when its stock was valued in the Rs 500-525 band. But as the stockmarket fell last week, Purvankara was forced to revise its offer price band to Rs 400-450, which allowed it to raise just Rs 898 crore.

But retail investors gave the issue a wide berth, leaving institutional buyers to subscribe to the company’s initial public offering (IPO). The same happened with the recent DLF IPO and this raises a question: Are we seeing a revision in the appetite for real estate stocks?

Yes. Real estate is a cyclical industry, and like all cyclical industries it is very sensitive to changes in interest rates; any increases in rates make prospective home owners postpone buying decisions. Given the Reserve Bank of India (RBI) is still seen to be committed to raising interest rates, this is depressing market sentiment as 70-80 per cent of the real estate market is residential.

Since realty markets in Bangalore and in north and central India have seen a 10-15 per cent correction, there is a growing perception that there is a glut in the supply of space and this is pulling real estate stocks southward.