India’s real estate stocks may outperform the benchmark Sensitive Index over the next six to eight months as higher property prices boost profit margins at developers, CLSA Asia-Pacific Markets said.

Shares of Indian developers may climb 20 percent in the next 12 months, Mahesh Nandurkar, a real-estate analyst at CLSA, said in a phone interview from Gurgaon, near New Delhi, today. The brokerage was ranked second for Indian stocks research by Institutional Investor magazine.

Property prices have climbed between 30 percent and 70 percent across India, with some markets having crossed their 2007 peaks, Nandurkar said. Real estate values in some markets are expected gain further, he said, helping to reverse the 13 percent drop in the BSE Realty Index this year. The Sensex has advanced 14 percent in 2010.

“We are bullish on property stocks as we expect margin expansion to play out going forward,” Mumbai-based Nandurkar said. “Higher property prices will flow through into the profit and loss accounts at developers.”

CLSA rates Indian property stocks “overweight” even after it reduced earnings estimates of developers by between 6 percent and 8 percent. The cut came after DLF Ltd. and Unitech Ltd., the nation’s two largest developers, posted quarterly profits in the past week that missed analysts’ estimates.

More IPOs

The expected gains in property stocks may prompt more share sales among real estate companies, Nandurkar said. Developers may raise about 15 percent to 20 percent of the $13 billion of planned share sales by Indian companies, he said.

Share sales by Morgan Stanley-backed Oberoi Realty Ltd. and Prestige Estates Projects Ltd., the Indian developer in a mall venture with CapitaMalls Asia Ltd., may prompt $3 billion in fundraising among real estate companies, according to data compiled by Bloomberg. Raheja Universal Ltd. and Emaar MGF Land Ltd. are among at least 11 builders waiting to tap the market, according to Bloomberg data.

“Property will clearly be one of the long-term stories in India given the trend on urbanization; we will see developers growing in size and scale,” Nandurkar said from the CLSA India investor conference in Gurgaon, which attracted 200 investors, almost all from overseas. The attendance is 40 percent higher than last year, he said.

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