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Wednesday, November 24, 2010

Realty Stocks, Debt And Investors

I just read a news about Realty stocks and the amount of debt they are carrying on their balance sheets. Realty companies normally carry big amount of debt for execution of real estate projects. Checkout how much debt these big real estate companies carry and what should be investor's stand on buying stocks of these companies.

Here is the amount of debt that big real estate companies in India have on their balance sheets. Economic times has published this list on 24th Nov. DLF, the biggest real estate company in India, is the leader of all, carrying more than twenty one thousand, six hundred crores of debt.

Realty Stocks, Debt And Investors

As per the news in Economic times, SEBI is worried about debt repayment ability of these real estate companies and so SEBI has told asset management companies (AMCs) to avoid exposure to real estate debt in their certain schemes. All regulators, including the RBI, are nervous about real estate, says this news.

"Also, the regulator is not satisfied with the reporting standards of most real estate companies. Balance-sheet strength, landbank valuation, authenticity of titles and project standards and execution are areas of concern for SEBI."

What does this development tells us as an individual small investor in stock markets? We need to be cautious on real estate stocks. Value investing principles talk clearly about debt and what my understanding is, if company id debt free, it has good potential to generate profits to share among shareholders. If company has a large debt, major portion of profits would go towards interest on debt and profits would be eroded, in which case, neither investors would get dividend nor stock price appreciation. Forget about such stocks being multibagger stocks and multiplying returns for their investors.

Click here to read related news in Economic Times
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