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Sarah

Indian Real Estate, Modulex Modular Buildings, Red Ribbon Asset Management Plc

Affordable Housing for India: A Perfect Storm of Opportunity

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Affordable Housing for India: A Perfect Storm of Opportunity

Mumbai’s skyline has, of course, been transformed beyond recognition over recent years, but its glass pinnacles are well beyond the reach of all but its wealthiest residents. So you need to look closer to the earth to find the true driver behind the subcontinent’s resurgent real estate sector.

India’s increasingly youthful population is moving out of the countryside at an increasing rate in search of better work, pay and living conditions and this is precisely the demographic the Affordable Housing Policy is designed to appeal to, because the dream of having a home (or a flat) of one’s own resonates like nothing else with this new wave of discriminating voters on the subcontinent…and nobody knows that better than Narendra Modi. His Government has aggressively pursued legacy policies on housing with the introduction of a raft of new tax incentives over the course of the last two Union Budgets, including giving infrastructure status to qualifying affordable housing, offering developers increased tax concessions and providing buyers with a range of fiscal incentives including subsidised interest payments.

And it’s not just voters who are being energised: investors are responding positively too in increasingly ingenious ways. For example, because banks in India aren’t allowed to finance land acquisitions the Private Equity Fund KKR has moved into the sector to offer development funding directly to contractors, taking an equity stake in the completed project. In what might be taken by some as a statement of the obvious, Sanjay Nayar of KKR India pointed out that “with the right project and partners, there’s good money to be made”.

There is indeed Mr Nayar.

Chris Wood of Citic Securities perhaps put it a little more eloquently: “Affordable housing in India remains one of the most straightforward bull stories in Asian equities. There will be an acceleration in economic activity in India in the coming 18 months driven by housing.”

But there is, of course, at least one (more or less hidden) difficulty with all of that. Given such a voracious and burgeoning consumer appetite coupled with capital market ambition and expansionist government policies, where are all these new homes going to come from? As we have noted previously on this site, stoking up such high levels of demand means India is now committed to building 856 new homes every hour between until 2050. Traditional construction technologies simply aren’t up to that kind of challenge, which is why commentators (including KPMG India’s Director of Real Estate Neeraj Bansal) have pinpointed Modular Construction as the single most important innovator in the sector.

By prefabricating units at scale and off site, Modular Construction is capable of delivering affordable housing on the required scale and at a reasonable cost: three times quicker and half as expensive as traditional construction methods. It is perfectly positioned to meet the demands and opportunities being created by this perfect storm in India’s real estate markets.

As Mr Nayer would probably say over at KKR: “there’s good money to be made”.

Modulex Construction is the World’s largest and India’s first Steel Modular Building Company, working to meet the Challenge of India’s urban housing shortages in a practical and focused manner. It was established by Red Ribbon to harness the potential of India’s dynamic and fast evolving markets, delivering exciting opportunities for investors. Because, when it comes to investing on the subcontinent, nobody knows India and its markets better than Red Ribbon.

Modulex Modular Buildings Plc is the World’s largest and India’s first Steel Modular Building Company, working to meet the Challenge of India’s urban housing shortages in a practical and focussed manner. It was established by Red Ribbon to harness the full potential of India’s dynamic and fast evolving markets, delivering exciting opportunities for investors because, when it comes to investing on the subcontinent, nobody knows its markets better than Red Ribbon.

Red Ribbon CEO, Suchit Punnose said:

For me, the key determinant of exponential growth in India’s real estate sector over recent years is the combination of an unprecedented growth in the subcontinent’s population and a rapid trend for its urbanisation: largely, as the article rightly points out, a product of this rapidly expanding population becoming progressively more youthful and more affluent. In time honoured fashion, India’s younger demographic is streaming from village to city with money in its pocket (in the hope of making more).

This is the demographic that Prime Minister Modi has so successfully appealed to through his Government’s re-energised Affordable Housing Programme: the other key factor driving growth in the sector. As with some of his other radical initiatives, the scale and scope of the programme has at times been breathtaking, but in truth it has to be to meet the sheer scale of the challenge.

And when it comes to delivering a workable solution to that challenge it seems to me, as most expert commentators now recognise, that the attraction of Modular Construction is simply inescapable. No other technology offers the pace and scale of delivery needed to meet India’s housing needs. That’s why Red Ribbon was committed to Modulex Construction from the very beginning of the project and we remain committed to it today. I’m convinced it is a vital element in meeting the challenges as well as making the most of the opportunities currently being presented by the subcontinent’s markets.

But none of that should beguile us from forgetting the sheer scale of the housing challenge India currently faces, in common with other leading global economies. Traditional construction technology simply can’t deliver to the scale and pace required by projected demand on existing governmental programmes. No wonder then than Modular Construction is a policy priority for Prime Minister Modi’s Government. It’s only a question of time before others follow suit…

India: A Sustainability Superpower

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The Government of Prime Minister Modi certainly can’t be criticized for a lack of ambition; indeed, when it comes to international policy-making and geopolitical influence, India is now up there with the best. Take last month for example, when Swedish and Indian Corporates together with leading Banks and a raft of high-powered non-governmental agencies met in Stockholm to review steps for future implementation of the Paris Climate Change Accords. India has taken its place at the top table, with an increasingly influential voice on the global stage.

It has become, in short, a Sustainability Superpower.

The Swedish talks took place against the backdrop of Nobel Memorial Week where, for obvious reasons, the future of climate change policies was high on the agenda; and there was a general  acceptance that the best place to see these policies in action is India given, in particular, that the subcontinent’s economy grew by 7.8% last year (making it the fastest growing large economy in the world). It also has one of the world’s largest populations (soon, indeed, to be the largest); and its major cities are growing at an unprecedented rate as the historically poor and impoverished population becomes increasingly urbanised and wealthy.

So the key question being asked in Stockholm last month was what cost will all of this growth bring in terms of future sustainability.

That’s not a question without its own particular difficulties in the context of the Indian economy.

For a start there is air pollution: the biggest current environmental challenge being faced on the subcontinent, with airborne particulate levels in the most densely populated of its cities frequently running twice as high as China’s worst megacities, with the root of the problem being largely attributed to historic and continuing dependence on coal-fired power generation.

This key concern was the subject of a wide-ranging discussion and debate at last month’s Conference in Sweden, which concluded (with a degree of obvious satisfaction) that whatever its historic problems might have been, India is now moving inexorably towards the full adoption of much more stringent energy efficiency policies, with renewable energy generation at their forefront.

The subcontinent is blessed with some of the highest sustained levels of sunshine on earth, perfect for solar power generation. So it should come as no surprise that it is now the world leader in solar and wind power generation technology. And getting all this power out to consumers has been high on the Government’s agenda too given that  at least 300 million people in India currently have no access to the national grid: so there is also a powerful and pressing need for the Government to make funding available so as to ensure these new resources are accessible to its population as a whole. That challenge has resulted in new funding commitments from Prime Minister Modi’s Government that would make most western governments shy away in terror.

In keeping with the scale and ambition of the Government’s hugely ambitious programme for new infrastructure investment, substantial spending plans are now being put on foot to support energy delivery, including key support for companies investing in construction projects through the new “Green Buildings” and “Smart City” initiatives.

All of which makes India a world leader in sustainability. Something the delegates in Stockholm were at pains to note.

Red Ribbon CEO, Suchit Punnose said:

Climate Change Policies were high up on the agenda in Stockholm last month during Nobel Memorial Week when top-level Indian and Swedish Governmental Officials met with Leading Companies and International Agencies to review the future of the Paris Climate Change Accords.
There was a general acceptance in Stockholm that the best place to see these policies in action is India.

The subcontinent’s economy grew by 7.8% last year (making it the fastest growing large economy in the world) and it also has one of the world’s largest populations (soon, indeed, to be the largest), with its major cities growing at an unprecedented rate as its historically rural and impoverished population becomes increasingly urbanised and wealthy. SEB, a key delegate at the conference, characterised India as a “Sustainability Superpower” In this week’s newswire, we take a look at what all that means for future sustainability on the subcontinent.

Read about Paris Climate Change Accords here

Read about Nobel Memorial Week here

Read about Smart City here

 

India and the Digital Economy: a trillion dollar opportunity

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Over recent years, three key factors have been driving India’s explosive economic growth: first, a burgeoning and increasingly urbanised population creating unprecedented levels of consumer demand; second, increasingly innovative governmental reforms, designed to reinvigorate the economy; and, thirdly, enhanced globalisation which has made the subcontinent a worldwide technology hub. Red Ribbon Asset Management has increasingly placed these factors at the core of its portfolio management strategies ever since the company was established more than a decade ago.

But now it seems we need to add a fourth factor to the list…

Last month’s influential Sector Report from Morgan Stanley Research identified the increasing digitisation of the Indian economy as a new driver for growth: underpinning a rapidly accelerating move away from the subcontinent’s traditional dependency on cash, particularly in its consumer markets. In the words of Anil Agarwal, Morgan Stanley’s Head of Asian Financial Research:

The country was already on a strong trajectory, but digitisation puts India’s nominal GDP growth on track to compound annually by more than 10% in U.S. dollar terms over the coming decade …the result could be a multi-trillion-dollar opportunity.”

India is already poised to become the world’s third largest economy in absolute terms by 2027, with GDP set to reach a staggering $6 Trillion. And the subcontinent’s equity markets, currently ranked tenth in the world, are projected to jump to fifth with financial services and consumer discretionary stocks leading the way.

Interestingly in that light, the Morgan Stanley Report goes on to conclude that although Indian Companies and markets will (inevitably) be the most obvious beneficiaries of these trends, the global implications for India’s cycle of economic resurgence should not be underestimated either.

The associated increase in e-commerce, consumption growth, financial products and investments could make India a significant market for corporations worldwide…Most importantly, it will become the template for other emerging nations. In fact, there may be lessons for developed countries too.”

But what exactly does digitisation mean in that context and why is it so important?

Well, the cornerstone of the analysis is the Jan Dhan Program which was launched by the Indian Government with the aim of ensuring that every household on the subcontinent would have access to a bank account by 2020. Since the program was launched three years ago,, a staggering 285 Million bank accounts have been opened (from a starting point where 35% of Indian households did not have a bank account at all).

Then there is the recent surge in mobile phone and Internet use. India currently has more than 800 Million mobile phone users, every one of whom is now able to join in the digitisation revolution started by Jan Dhan. And just in case you’re wondering, the United Kingdom currently has 41 Million Mobile Phone users and the United States 266 Million (roughly 3% and 25% respectively of the equivalent figures on the subcontinent).

These are the two demographic factors that Prime Minister Modi’s Government is currently bringing together so as to turbo charge future economic growth in India, encouraging the population to move further and faster towards a cashless market by incentivizing digital payments, because it knows, better than most of its western counterparts that cash transactions can seriously hinder economic growth. No wonder then that Morgan Stanley has identified digital transactions as a key facilitator of a brighter economic future.

India is now demonstrating that it has the capacity, as well as the will to make that happen.

Red Ribbon CEO, Suchit Punnose said:

Last month’s influential Sector Report from Morgan Stanley Research identified increasing digitisation on the subcontinent as a new driver for growth, underpinning, in particular, a rapidly accelerating move away from India’s historic dependency on cash, particularly in consumer markets.

In the words of Anil Agarwal, Morgan Stanley’s Head of Asian Financial Research: “The country was already on a strong trajectory, but digitisation puts India’s nominal GDP growth on track to compound annually by more than 10% in U.S. dollar terms over the coming decade …the result could be a multi-trillion- dollar opportunity” India is already poised to become the world’s third-largest economy in absolute terms by 2027, with GDP set to reach a staggering $6 Trillion by the middle o the next decade. And its equity markets, currently ranked tenth in the world, are projected to jump to fifth with financial services and consumer discretionary stocks leading the way.

So why does digitisation matter so much as a driver to these significant trends and economic projections? We take a look in this week’s newswire.

Read the Morgan Stanley Research Report here:

Read about the Jan Dhan Program here:

 

 

The Money Go Round: how to (really) revitalise an economy

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India’s Government has a majority stake in no less than twenty-one of the subcontinent’s banks, quite a few of which (not unlike their counterparts in the west) have been struggling recently to meet capital adequacy requirements imposed by their regulators. But here’s the key difference: whereas the challenges this poses in the west have been met by governments lending funds in return for a controlling equity stake (RBS and Lloyds TSB spring to mind), India has gone about things exactly other way round and, as it turns out, to much greater effect.

Under the new Fiscal Plans announced by the Indian Government on 24th October, these twenty-one Banks will lend the Government $21 Billion (a third of their combined market value) and in return the Government will buy more shares in the Banks. Superficially, it looks like a money go round, but the new policy makes perfect economic sense and it is just the latest in Prime Minister Modi’s striking range of economic initiatives designed to ensure India remains the leading Growth Market on the Planet.

From a macroeconomic perspective,of course, the Indian Banking system suffered nothing like the same catastrophic shocks which were to hit Western Financial Markets in the aftermath of the 2008 Crash; but most Banks on the subcontinent did embark on something of a lending spree following that crash, suffering perhaps from the peculiar species of schadenfreude often inspired by having (much) more money when most of your neighbors have none.

And these heady years of untrammelled and often imprudent lending decisions eventually collided headlong with the buffers of the financial reforms instituted last year by Prime Minister Modi’s Government: demonetization (of course) but also the new GST regime and a raft of new policies designed to root out historic and bureaucratic bottlenecks and inefficiencies in the subcontinent’s markets, plus a reinvigoration of arbitral and legal procedures for good measure.

Set in that context, the liquidity bottlenecks in the banking system were never likely to escape the same tide of reforming zeal. And, indeed, they haven’t.

That’s what last month’s banking initiatives were all about.

State owned banks in India are expected remove a staggering 10.5 Trillion Rupees (£163 Billion) worth of bad and doubtful debts from their books. This will in turn increase their capacity to make new loans and, to paraphrase Milton Friedman, not only mitigate “the harm done by a few men who wield vast financial power over a country’s monetary system”, but positively demonstrate that a few more men (in the Indian Finance Ministry) can work positive good in their place.

Given bank equity margins on the subcontinent have been  nudging perilously close recently to regulatory minima, this new injection of capital (framed though it is in an ingenious and, to western eyes counterintuitive way) will inevitably lead to a radical improvement in liquidity levels across the Indian economy.

That also seems to be a view shared by the markets since the new initiatives were announced: share prices in the banks participating in the scheme rose by more than 25% last month. And it’s not as though Indian markets won’t have the capacity to find worthwhile ways to spend all this new money: the subcontinent is currently the fastest growing large economy on the planet with infrastructure spending running at an all time high.

What’s not to like?

Red Ribbon CEO, Suchit Punnose said:

Under new Fiscal Plans announced by the Indian Government on 24th October, twenty-one of the subcontinent’s leading banks will lend the Government $21 Billion (a third of their combined market value) in return for the Government taking an increased stake in their shares. Superficially, it looks like a money go round, but the new policy makes perfect economic sense and it is just the latest in Prime Minister Modi’s striking range of economic initiatives designed to ensure India continues to be the leading Growth Market on the Planet.

Even though the Indian Banking system suffered nothing like the same catastrophic shocks that nearly crippled Western Financial Markets in the aftermath of the 2008 Crash, most Banks on the subcontinent embarked on something of a lending spree following the crash. Something had to be done to rein the consequences of that in and improve liquidity levels across the economy.

And as with so much in recent years, Prime Minister Modi wasn’t slow to meet the challenge.

 

Window view with colourful concrete constructions of city in India

Indian Real Estate Markets: a Perfect Storm

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A perfect storm of demographic and economic factors is converging in India, and it is underpinning an unprecedented cycle of growth in the subcontinent’s real estate market.

With the fastest growing population in the world, India now has an increasingly urbanised and wealthy consumer base too and it is acting as a key driver for this, the fastest growing large economy on the planet which is now experiencing an unprecedented demand for domestic housing and new commercial (especially in social housing in its densely populated conurbations). So it should come as no surprise to learn that real estate investment on the subcontinent is now a core part of Red Ribbon’s investment strategy, helping to generate above market rate returns for its investors in one of the most exciting Growth Markets anywhere in the World.

And that’s not all, because these trends on the subcontinent are showing little sign of slowing down. On the contrary, they are likely to escalate still further according to October’s highly influential Cushman & Wakefield Report (“Winning in Growth Cities”) which has collected together data compiled from an exhaustive survey of no less than 400 global investment locations.

The Report found that real estate investment in India’s six major cities alone has doubled in the first half of this year to a staggering $2.87 Billion, with Mumbai taking the lion’s share as might be expected, pushing it to a worldwide investment ranking of 81st (up from 149th  last year). And that figure of $2.87 Billion, in case you were wondering, represents an increase of more than 100% on the equivalent figure from 2016. Mumbai also ranked number one in absolute growth terms amongst the so-called “gateway cities” worldwide, with a 194% increase in investment from last year (only Pune outshone its more illustrious neighbour, with an astonishing 285% growth in investment).

There can be little doubt as to the strength of India’s real estate sector.

And in terms of segmented participation in the global investment pot, Cushman’s Report found that more than 55% was sourced from the United States; European investment accounted for roughly 14% and the bulk of the rest came from local investment (a further pointer to the core strengths of the economy).

Anshul Jain, Country Head and Managing Director of Cushman & Wakefield in India, put his finger on the significance of this for the wider Indian economy:  “Current economic drivers are biased towards developed markets, but Indian cities are performing ahead of expectations and are clearly offering superior medium to long-term growth potential in real estate.”

Jain went on to say that further afield from the subcontinent’s more established markets, the new manufacturing hub centres of Chennai, Hyderabad and Pune are also proving to be attractive for real estate investment, driven in particular by their burgeoning production and assembly facilities in the automobile, engineering and pharmaceutical sectors.

Red Ribbon CEO, Suchit Punnose said:

With no sign of the exponential growth in India’s Real Estate market slowing down anytime soon, last month’s influential Cushman & Wakefield Report (“Winning in Growth Cities”) has highlighted staggering progress in the sector over the past year. Investment in India & it’s six major cities alone has doubled in the first half of the year to $2.87 Billion, with Mumbai taking the lion’s share pushing it to a worldwide ranking of 81 st (up from 149th last year). And Mumbai is also ranked number one in absolute growth terms amongst the so-called “gateway cities” worldwide, with a 194% increase in investment from last year (only Pune outshone its more illustrious neighbour, with an astonishing 285% growth in investment). It all goes to underpin just why India is currently the most exciting Growth Market on the Planet.

Read the Cushman & Wakefield Report here

Read about the Indian Manufacturing Hub here

Read more about the Demographics underpinning Indian Real Estate Growth here

Power plant using renewable solar energy with sunset over the Gap in the Himalayan Mountain, Kashmir, India

Embracing the Future: Indian Business Makes Sustainability Matter

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In August this year, former President Barak Obama fiercely criticised his successor’s decision to withdraw from the Paris Climate Accords: he predicted that the decision would inevitably consign the United States to “a small handful of nations that reject the future”. But happily, as in Nature itself, Global Geopolitics abhors a vacuum too and since President Trump announced his decision in August, other nations have been stepping up to the plate by embracing a more sustainable future. And foremost amongst them is India.

This isn’t just a reflection of new environmental policies from Prime Minister Modi’s Government, although there have been plenty of those as well.

According to the Carbon Disclosure Project (a not-for-profit charity that reports on global disclosure protocols for investors looking to manage their environmental impact), Indian businesses are already focusing much more on setting emission reduction strategies and renewable energy targets so as to bring them into line with the Paris Accords. The CDP published its report on 21 October and it shows that out of the 51 Indian companies sampled (43 of which are BSE top 200 companies), no less than 80% have responded to the India Climate Change programme by implementing one or more types of emissions reduction targets and initiatives during 2017.

And that’s not all: 40% of this same sample of leading Indian companies were already implementing strategic commitments to move to renewable energy sources and reduce consumption targets; with three of them (Infosys, Tata Motors and Dalmia Cement) committing to a move to 100% renewable supplies before 2022.

The CDP Report also identifies internal carbon pricing as a significant factor in this seemingly autonomous move within Indian Industry towards Paris compliant targets. Companies on the subcontinent are part of a wholesale trend in adopting internal pricing of carbon as a tool for managing climate risk and they have increased in number from just two in 2015 to eight in 2016 and up to fourteen this year. That is a startling increase of 700% over a three-year period. These companies include some of India’s brightest and best, so their business decisions are certainly not to be taken lightly.

And how is all that likely to reflect on the future Barak Obama was so keen for the World, and Donald Trump, to embrace?

Well, if what’s happening in India at the moment is to be taken as a global model (which it should be), with industry on the ground adhering to macroeconomic policy statements targeted on a greener planet, this will inevitably create a de-carbonization level that is sufficient to keep worldwide temperature increases below two degrees Celsius (according to the same CDP Report). That has to be something worth striving for.

Red Ribbon Asset Management has been committed to the pursuit of environmentally friendly investment policies since the company was founded more than a decade ago; adopting policies that deliver above market rate returns for investors without harming our communities, our wider society or the environment on which we all depend.

Red Ribbon CEO, Suchit Punnose said:

According to the Carbon Disclosure Project, Indian businesses are now focusing much more on setting their emission reduction strategies and renewable energy targets to fall in line with the targets set by the Paris Climate Accords. No less than 80% of fifty-one companies sampled (forty three of which are BSE top 200 companies) have responded to the India Climate Change programme by implementing one or more emissions reduction targets during 2017. It all points to India taking the lead in post Donald Trump, climate change politics and we take a look at what that all means, for India and for our Planet.

Read about the Carbon Disclosure Project here

Read the CDP Report here

Read about the Paris Climate Accords here

How do they connect? The Hospitality sector and the adaption of a Mainstream Business Model.

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Mainstream Impact Investment is a New Economic Paradigm: actively seeking out those businesses that look to regulate the negative impacts of their activities on the communities in which they operate as well as our wider society and on the environment at large. And not just because they are required to do so as part of a regulatory, tick box exercise; but because they know this will make them more resilient over the long term, and businesses that are better equipped for the long term will do better in the short term too. That’s why Red Ribbon Asset Management has placed Mainstream Impact Investment at the heart of its portfolio management strategies since the company was founded more than a decade ago. 

And a good example of just how effective a business model this can be is currently to be found in the lush foothills of the Madhya Pradesh Region in India, where a recent study into ecotourism found that by actively reducing the negative impacts of tourism on the environment, businesses in the sector would also deliver substantial benefits for local communities which can underpin their long-term viability. No less than 45% of revenues generated through ecotourism in Madhya Pradesh went directly to local communities according to the study, The Value of Wildlife Tourism for Conservation and Communities, which was conducted across the Bandhavgarh, Pench, Panna and Kanha National Parks in Madhya Pradesh earlier this year.

The Study looked at 145 eco-lodges overall, all of which provided significant income-generating opportunities for the local communities in which they were located: generating INR 166 crore each year, some INR 75 crore of which went directly to local communities (about 45% of the aggregate yield so leaving a healthy surplus for the business operators, further bearing out the viability of the model).

And at an even higher altitude, in the foothills of the Indian Himalayas to be exact and close by the Nepalese Border, you’ll find the hugely successful Shakti 360 Leti Resort which is built and operated on eco friendly principles: almost all of the units on the site run on solar power, wastewater is reused and there is an ongoing commitment to the local community with buildings being leased from the community (not bought) with the deliberate objective that the community owners can then profit from the enterprise. Again, it is a good example of a business structured so as to be resilient and robust for the long term and it is also another good example of the success of the Mainstream Impact Investment Model.

And closer to home, of course, it is a model that has also been working extremely well for Eco Hotels, the world’s first carbon-neutral, premium value hotel brand which combines all of the best features of top-grade hospitality with a commitment to doing everything possible to secure the wellbeing of the planet and the dynamism of the local communities in which it operates. Red Ribbon is the founder of Ecolodge and it has now embarked on an ambitious programme to expand the brand into the BRIC territories and India in particular. By doing this it is building still further on its core commitment to Mainstream Impact Investment strategies and at the same time delivering above market rate returns for its investors.

Red Ribbon CEO, Suchit Punnose said:

A recent major study into eco tourism in Northern India found that through actively reducing their negative impacts the environment businesses engaged in the hospitality sector could not only deliver substantial benefits for their local communities but also underpin and reinforce their own long-term commercial prospects as well. It’s a model that sits at the heart of Mainstream Investment Strategies, which recognise that long-term viability can also be a recipe for short-term business success.

Read the Value of Wildlife Tourism for Conservation and Communities Report here

Read about the Shakti 360 Leti here

 

 

An Expansive Monetary Policy: Renewing India’s Infrastructure Markets

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Speaking in a typically candid interview in 2000, just a few short years before his death, Milton Friedman took (for him) unusual care in distinguishing between two of the critical “classes” of spending that made up Roosevelt’s New Deal Economics of the 1930’s, both critical to the subsequent expansion of the U.S. Economy: “One class was reform: wage and price control, the Blue Eagle, the National Industrial Recovery Movement. I did not support those. The other part of the New Deal was recovery through motivating the economy to expand through infrastructure investment … an expansive monetary policy. Those parts of the New Deal I did support.” You can imagine the eminent economist jabbing the air with his finger as he spat out the word “did”. 

And although you probably haven’t heard that here first (chances are you haven’t), these comments can still cause surprise: coming as they do from the arch monetarist and seeming enemy of expansionist spending programmes. But of course, they shouldn’t, because Milton Friedman was well aware that infrastructure spending is the engine room of any modern economy, and no modern economy can afford to ignore it.

The lesson certainly hasn’t been lost on Prime Minister Modi’s Government in India, which for the last three years has been pursuing one of the biggest infrastructure spending programmes in living memory; not only staggering in scale for the subcontinent but staggering in scale for any economy, anywhere in the world.

By way of only one example, the Government announced on 23 October that it was embarking on one of its biggest highway construction programmes so far on the subcontinent: involving no less than 83,677 km of new roads at a cost of Rs 6.92 lakh crore (nearly £81 Billion); with the whole, titanic project due to be completed within five years and creating at least 3.2 Million hours worth of additional employment across the country before the works are completed.

Prime Minister Modi declared in opening the scheme that the new programme would “transform India through roads”; and in doing so he seems to have chosen his words as carefully as Milton Friedman, because that phrase comes straight from his predecessor in office, Atal Vajpayee and Atal Vajpayee certainly knew a thing or two about building economic success on ambitious infrastructure programmes.

Vajpayee launched the Golden Quadrilateral Highway project in 1999, so as to link Delhi, Mumbai, Chennai and Kolkata by road. It was, at the time, India’s most extensive highway project ever and the scale of this ambition was already apparent from Vajpayee’s earliest inaugural statement: “The highways we are building under the National Highways Development Project are not mere highways. They are the bhagyarekha (lines of destiny) on the hands of our nation. With these highways, we are writing a new destiny of India.” Prophetic words indeed: the Golden Quadrilateral has become today’s beating heart of India’s transport infrastructure during its subsequent years of rapid economic expansion.

When it comes to infrastructure spending then, there seems to be a simple lesson: if it isn’t broke, don’t fix it. Copy it instead.

Red Ribbon CEO, Suchit Punnose said:

The Indian Government of Prime Minister Modi has just announced that it is about to embark on one of its biggest highway construction programmes yet: 83,677 km of new roads at a cost of Rs 6.92 lakh crore, with the whole, titanic project due to be completed within five years and generating at least 14.2 crore additional days of employment before completion. That should come as no surprise for an economy that is embarking on one of the biggest infrastructure spending programmes in living memory; not only staggering in scale for the subcontinent but staggering in scope for any economy, anywhere in the world. We take a look at why these infrastructure programmes are so important for the future growth of the economy.

Read about Indian Infrastructure Policies here: 

Read about Infrastructure Economics here:

Read about the Golden Quadrilateral Highway here:

 

Why Invest in Growth Markets?

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Growth Markets are more than just an exciting investment opportunity, they are also a driver to global economic growth and that’s why at Red Ribbon we believe that no investment portfolio can be properly balanced unless at least 10% of its assets are invested in Growth Markets.

Mainstream Impact Investment: A Sea Change in the Market

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Businesses that set out to minimise the negative impacts of their activities on the community, our society and on the environment at large are better equipped to be successful in the long term; actively structured to meet the demands of an increasingly social market without compromising on their capacity for commercial success. Indeed, these businesses are better able to succeed commercially precisely because they are responsive to this wider social setting.

That was the conclusion reached by last month’s report from the influential research team at Mckinsey which found that more than a quarter of assets now under management globally are being invested on the premise that environmental, social, and governance issues can significantly impact on a company’s long term performance; and given companies which embrace that same cultural mindset will usually perform better in the long term, that should all point to better short term investor returns too as well as a much more robust and resilient share price.

So it isn’t altogether surprising that the market at large is now starting to sit up and take notice of Mainstream Impact Investment strategies; the same strategies which have been at the heart of portfolio management at Red Ribbon Asset Management since the company was founded more than a decade ago.

Major global institutional investors adopting impact investment strategies include the Government Pension Investment Fund of Japan (the world’s largest, with AUM of over $1.1 Trillion), Norway’s Government Pension Fund Global and ABP, the Dutch State Pension Fund (which is the second largest in Europe). As the Mckinsey Report also points out, these behemoths of the investment world are not just switching course for ethical reasons alone: they are pursuing “a conventional investment aim of maximizing risk-adjusted returns”.

And the Report goes on: “…Sustainable investing has become a large and fast-growing major market segment. According to the Global Sustainable Investment Alliance, at the start of 2016, sustainable investments constituted 26 percent of assets that are professionally managed in Asia, Australia and New Zealand, Canada, Europe, and the United States ($22.89 trillion in total). Four years earlier, they were 21.5 percent of assets”.

As though to make that point good, the Government Investment Fund of Japan announced in July this year that it had selected three sustainability indices as future reference points for its passive investment in Japanese equities; and for its part, ABP had already announced that it would include as part of its cross portfolio investment criteria a reduction of carbon-emissions by 2020 of 25% as well as a commitment to invest at least €5 billion in renewable energy by the same date.

These trends are not just straws in the wind. They are all clear pointers to the future, supporting the new paradigm of Mainstream Impact Investment. And of course, the flip side is important too. Mainstream businesses that calibrate their activities so as to reduce their negative impacts on the community, society and the wider environment will also provide a long term, viable basis from which all three segments can flourish. It is the difference between a one off, short-term social project and an entirely new paradigm for society.

It is that important.

Red Ribbon CEO, Suchit Punnose said:

The influential research team at Mckinsey produced a major new report last month which found long term performance to be significantly affected by good environmental and social market performance, as well as a company’s capacity to deliver effective governance in both fields; and companies that perform well in the long term will usually do better in the short term too, which means compliance with all three criteria is likely to deliver better investor returns and a more robust share price for the company in the short term too. So its not altogether surprising that the market at large is now starting to sit up and take notice of Mainstream Impact Investment strategies; the same strategies which have been at the heart of portfolio management at Red Ribbon Asset Management since the company was founded more than a decade ago.

Read the Mckinsey Report here: https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/from-why-to-why-not-sustainable-investing-as-the-new-normal?cid=other-eml-alt-mip-mck-oth-1710

Read more about Mainstream Impact Investment here: reports.weforum.org/impact-investment/

Read about Red Ribbon Fund Management here: https://redribbon.co/

Red Ribbon

At Red Ribbon we understand that the transition towards a resilient global economy will be led by well-governed businesses in mainstream markets, striving to reduce the environmental impact of their production processes on society at large and on the environment as well.

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