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How will the pandemic downturn end …And what will the future look like?

By India, News

AJP Taylor asked an interesting and counter intuitive question, How Do Wars End? Most historians focus on how they begin: with re-armament, broken treaties and aggressive expansion, but how do they end? That can be a more interesting question, examining the impact of national exhaustion, often unbearable loss and a reinvigorated appetite to build bridges across divides. And as President Macron reminded us when all this started, we’re at war with COVID19: so how will this war end? How will the social and economic turbulence caused by the pandemic finally come to an end, and what will the world look like when it does?

Well, given the scale of the economic shocks the virus is leaving in its wake, we certainly can’t expect all the building blocks of the existing economic order simply to fall neatly back into place; and nor should we, because there are serious lessons to be learned.

President Macron was right when he cautioned “Many certainties and convictions will be swept away. Many things that we thought were impossible are happening, so the day after we have won the battle against the virus won’t be a return to the day before: we will be stronger morally and we will draw new conclusions about the way ahead”. And that’s a view shared too by the Leader of the Social Democratic Party in Germany: Norbert Walter-Borjans has predicted a radically new kind of globalisation in the post COVID world, and even Henry Kissinger (a confirmed economic conservative if ever there was one) has advised leaders to prepare for a “new world order” when the virus is finally defeated. 

So what will this new world order look like? 

First, and most obviously, we will almost certainly see a redefinition of the role of the State in civil society, with fresh importance attached to social capital: a new emphasis on the role to be played by individuals, communities and business as part of a more energised and engaged national framework. Just look at the rapid (and wholly voluntary) enlistment of more than 750,000 would be participants in the UK Government’s Coronavirus Support Scheme, making the divisions caused by Brexit seem a million miles away and graphically confounding Steve Bannon’s prediction that the “administrative state” is dead. Who wants to be entirely reliant on Amazon and commercial suppliers for the supply of protective facemasks if anything even remotely like this happens again? The crisis has taught us we need the administrative state more than ever, and the State will have a new role.

Indeed, as a catalyst for economic survival that newly defined role is already apparent. Unprecedented sums have been committed across the globe through Central Bank and Government interventions: Donald Trump (hardly a fan of Keynesian economics) has approved a $2 Trillion Financial Stimulus Package, and in the United Kingdom the Conservative Government (with a decade long policy of financial austerity) nodded through a £342 Billion support measure. In the EU more than 540 Billion Euros have been allocated to meet the unforgiving challenge of the pandemic. That’s £2.5 Trillion in all, or £300 Billion more than the entire UK GDP in 2019. If Coronavirus support was an economy, those three interventions alone would make it the sixth biggest in the world.

Even though tighter monetary policies are likely to be reimposed after the virus is finally consigned to history, the capacity of this kind of state inspired intervention to end an economic downturn (no matter how severe) has been thoroughly tried and tested for at least the last 90 years. Lower interest rates also act as a further stimulus to recovery, and although typical central bank rates were hovering around 0.75% in March so they haven’t got that much further to fall, analysts predict that even a 0.25% reduction can increase GDP by as much as 1%.

So that’s the first thing we’re likely to see: stronger and more confident State oversight. If it was difficult to see that not happening in the aftermath of the global crash in 2008, it’s almost impossible now. Steve Bannon is unlikely to find himself on the right side of history…

Which brings us to the second key pointer: the pandemic has resulted in the role of Globalisation being scrutinised like never before. Joseph Stiglitz, Professor of Economics at Columbia University, has predicted a reduced role for global supply chains, pointing out (with obvious justification) the failings of dangerously localised and disparate facilities for production of medicines and clinical equipment. So for that and other reasons it seems likely our dependence on just in time supply chains will also diminish and give way in time to more regionally based production centres. Economies like India, which has already established an enviable reputation as an Asian distribution hub, are likely to benefit from the change…which neatly leads into the third key pointer.

Even before the pandemic emerged, we were seeing definitive signs of a progressive shift in economic power away from the West and towards Asian economies. The response to the crisis means we can now expect that trend to be speeded up.

Harvard International Relations Theorist, Stephen Walt, put it succinctly: “Coronavirus will accelerate the shift of power and influence to the East. South Korea and Singapore have shown the best responses, and China has managed well in the aftermath of its initial mistakes. In contrast, the response of Governments in Europe and the United States has been sceptical and likely to weaken the power of the western brand.” And for those thinking China, Singapore and South Korea have been successful only because of a lack of democratic traction, think again: Shivshankar Menon, Visiting Professor at India’s Ashoka University, points out that Authoritarians and populists alike are no better at handling the pandemic. Those countries that responded early and successfully, such as Korea and Taiwan, are democracies”.

But East or West, cooperation has never been more important than it is now: after an all too often stumbling and uncoordinated response in the West, countries across the globe have now been drawn to work together as they have rarely done before, whatever their political complexion might be.

And that alone should give us cause for hope: our global future might just be better, more collaborative and more cohesive than the past has ever been.

 Invest in Red Ribbon Asset Management 

Nobody understands the fundamentals of the Indian economy better than Red Ribbon Asset Management, which has placed the subcontinent at the heart of its investment strategies since the company was founded more than a decade ago. Drawing on unrivalled knowledge of local markets with an expert team of more than a hundred advisers working in India’s economic hotspots, the Red Ribbon Private Equity Fund offers unique opportunities to share in this potential.

Amazon’s latest investment in Hyderabad

Mr Bezos goes to Hollywood… by way of Hyderabad

By India, News

Mr Bezos goes to Hollywood… by way of Hyderabad

Amazon started out with Jeff Bezos selling books from his mum and dad’s garage and he warned his investors that there was a 70% chance of the company failing, but the world’s richest man is now at the helm of a corporate monolith and he has just spent $165 Million for a house in Beverley Hills: the most expensive residential property of its kind in California’s glitzy, dollar scattered history. And for that kind of money you could buy 4,715 houses in Hyderabad which is enough to put up a third of the 15,000 employees who will now be employed at Amazon’s nine acre Campus in the City’s financial district: the biggest of its kind in the world.

Of course, Hyderabad has long nurtured an ambition to emulate the Bezos heartland of California’s Silicon Valley, so it’s hardly surprising it should now feature so prominently on his radar: Oxford Economics predicted this year that within the next decade all ten of the world’s fastest-growing cities will be in India, and among this select grouping Hyderabad is growing fourth fastest by GDP and is the second biggest technology hub on the subcontinent after Bangalore. 

It is unsurprising too that the sheer scale of Amazon’s new venture should be characteristically leviathan: the canteen can cater for 2,500 at a single sitting and a dozen new shopping malls are set to open in Hyderabad by June next year to cater for solitary geeks looking for quality shopping time away from the madding crowd: perhaps, like so many young Indians, to buy a new smartphone or (less likely) a book. As a result of the Financial District of Hyderabad currently resembles nothing so much as an enormous construction site with more and more hopefuls pouring into the City every day looking for work. There are new flyovers to relieve the traffic.

And for those lucky enough to get a staff pass to the canteen, there are suitably Amazonian touches to keep them amused during those late-night coding sessions: table tennis tables, Zumba classes, a Treadwall (whatever that is) and even a synthetic cricket pitch which might help visiting Americans understand what the World would be like without baseball and how to pronounce Sachin Tendulkar’s name properly (Donald Trump take note).

But there’s obviously more to Amazon’s decision than Treadwalls and cricket: Jeff Bezos didn’t become the world’s richest man without being able to recognise the planet’s fastest-growing retail and technology market when he sees it. Cisco Systems have had their calculators out and predict that by 2022 India will have a staggering 829 Million smartphone users compared with 199 Million in 2015: the exponential growth is breathtaking. Added to that online shopping is literally going viral on the subcontinent with some estimates putting the market as high as $200 Billion annually (up from $30 billion last year). 

With honey pots that big, international retail giants were bound to be jostling for a piece of the action and Amazon is just one of several currently putting down a (very big) stake in India’s future including, most notably, Flipkart (now owned by Walmart) and the Ambani owned Reliance Retail. Bearing in mind the subcontinent is still on course to become the most populous nation on the planet by 2022: much more middle class, with a younger demographic and much more money to spend, those stakes are only going to get bigger. 

 Invest in Red Ribbon Asset Management 

Nobody understands the fundamentals of the Indian economy better than Red Ribbon Asset Management, which has placed the subcontinent at the heart of its investment strategies since the company was founded more than a decade ago. Drawing on unrivalled knowledge of local markets with an expert team of more than a hundred advisers working in India’s economic hotspots, the Red Ribbon Private Equity Fund offers unique opportunities to share in this potential.

Executive Overview

The scale of Amazon’s latest investment in Hyderabad is truly breathtaking: as the article says, the Campus is now the biggest of any of the company’s anywhere in the world. But I think it is more important to ask why the investment has been made and why it has been made now.

In my view, it is clearly a response to explosive growth rates in the subcontinent’s on-line retail markets and there is every indication that these rates will not only be maintained but will accelerate over the next decade.

Watch this space…

The Future is Blockchain…”A Unique Opportunity for India to Take the Lead”

By India, News No Comments

With all too obvious shades of George Orwell and Jackboots, a new “Control Commission” was never going to be a runner for India, so when the Orwellian sounding Independent Evaluation Office recommended just such a body be created in place of the Planning Commission, Prime Minister Modi wisely gave it the cold shoulder: he went instead for the cosier sounding National Institution for Transforming India, or NITI Aayog (“NITI”) for short, and the new body convened for the first time in 2015. So why does that matter? Well, the current Chairman of NITI is a certain Narenrda Modi and its core purpose is to decide national development priorities, sectors, and strategies”: so take note, NITI and Mr. Modi have just decided Blockchain is a national priority.

Blockchain technologies will empower citizens through increased transparency, decentralization and added accountability…and has the clear potential radically to improve living standards across the country”. So says NITI. And who in their right mind is going to vote in favour of increased transparency, added centralisation and less accountability: only, one suspects, a certain class of desiccated bureaucrats with something to hide and a preference for life in the shadows. Narendra Modi is certainly not one of them.

So despite all the huffing and puffing going on in Indian Government circles at the moment (not least from Reserve Bank lawyers shuttling backwards and forwards, to the Supreme Court every couple of weeks), this latest pronouncement is the clearest signal possible that Blockchain will be front and centre in the future of India’s economy.

Snappily titled “Blockchain: The India Strategy – Towards Enabling Ease of Business” (who on earth makes these things up?), the NITI Report has identified a number of key areas for potential innovation, including better contract management, improved procurement and enhanced quality controls across existing supply chains: not to mention the much-heralded prospect of a radical decentralisation in current decisionmaking powers across the subcontinent.

Of course the streamlining of land registry records and property transfers has already been widely trailed, as has a more transparent (and cheaper) Blockchain-based pharmaceutical supply infrastructure, but the Report now goes much further by highlighting the possibility of additional innovated changes in areas such as issue of educational certificates (where fraud is currently a major issue), insurance, agriculture, and energy trading markets. All will now be targeted for the delivery of new decentralised social networks, and in a masterly display of understatement the Report’s authors caution the Government to give each of them “special attention”. Bearing in mind the identity of NITI’s Chairman, there can be little doubt it will.

And just to ram the point home for those still of an agnostic disposition, the Report concludes on a suitable ringing note: “India now has a unique opportunity for the government to take the lead in creating public digital infrastructure and allow private sector innovation to leverage it for further development.”

Quite right.

When NITI Aayog was created in 2015, the former Finance Minister Arun Jaitley went on record to say the predecessor body was fit only for a “command economy structure and had become redundant…India is now a diversified country and a ‘one size fits all’ approach to economic planning is obsolete. That cannot make India competitive in today’s global economy.” 

There couldn’t be a better expression of why Blockchain will be so important for India’s future and why, far from being redundant, NITI has the resolve and resources to make sure it takes its proper place…and soon.

 Invest in North Block Capital Fund

North Block Capital Fund is structured to make the most of the exciting opportunities India has to offer, launching in Blockchain DLT and Crypto Currencies. It draws specifically on the company’s unparalleled expertise in the subcontinent’s markets because when it comes to India, nobody understands those markets better than Red Ribbon.

Executive Overview

With all of the conflicting and confusing public statements over the last year and a half, not to mention the ongoing tussles in the Supreme Court, its about time we had a clear and cogent expression of Blockchain’s future in the Indian economy.

NIFTI has now given us that and we should be grateful: we wait now for its Chairman to act on the findings…as I’m sure Mr Modi will.

The Trouble with REITS…Making on the Carry is fraught with danger, but India has the answers

By India, News No Comments

Two Loans don’t make a REIT: you need more than that to make this vehicle fire on all cylinders because the problem with REITs is they’re especially vulnerable to fluctuations in short-term interest rates. The Real Estate Investment Trust (or REIT for short) comes complete with a range of tax incentives and a market model equivalent to a publically traded Mutual Fund, but whatever the fiscal advantages might be the REIT Industry worldwide is now heavily debt dependant: a paradigm example of Keynes’ warning that all unstable markets are inherently speculative. Debt finance predominates over equity as REIT Managers increasingly struggle to attract short term funding to meet construction costs, often years before the asset itself has generated a single penny in income.

Born in the challenging economic conditions of 1970’s North America, REITS grew up, as bankers say, “making on the carry”: entering into dozens of short term loans over the construction phase of the project in the hope this would carry it over to completion, because only on completion would there be anything to pay the loans back with. Two thirds or even three quarters completed, an apartment block is not only virtually worthless on the balance sheet, but it also won’t be generating any income either. In the months and years of construction, there’s no cash flow at all, and any volatility in interest rates can prove catastrophic with all those rolling interim loans falling due.

And to add to the danger, any long term rise in interest rates will also make it harder to find tenants or buyers for the completed property: each of them finding their rental and mortgage deals more difficult to find and fund as the market tightens, and If that happens the capital value of the part completed property can spike sharply downwards making the project’s core finance and all those back-to-back loans (all that making on the carry) more expensive still… and it can all happen in a heartbeat.

Timing is everything and timing means interest.

When it last met in December the Bank of England’s Policy Committee decided to hold interest rates at their historic low of 0.5% by a vote of six to three, but perhaps tellingly Andy Haldane (the Bank’s Chief Economist) decided to switch sides and support a rate hike. And fragile as the UK economy is, with zero growth over the last quarter of 2019, a rise in interest rates now looks more likely as the Bank looks to protect sterling in an ever more volatile post Brexit environment. UK REITS on the carry won’t view that prospect with any equanimity…

But things couldn’t be more different in India where the Reserve Bank delivered five straight cuts in interest rates last year: an aggregate reduction of 1.5% over the year leading to a 5.1% December close. Distant memories of the subcontinent struggling with a rate of 14.5% in 2000 are just that…distant memories. And my word how this progressive reduction in rates has born fruit for India’s freshly minted REIT industry.

India’s first-ever REIT was listed in 2019 and created an immediate feeding frenzy among external Funds, including Nikko AM- Straits Trading, North Carolina Fund and Sentry Global: each of them struggling to elbow the others out of the way to get a piece of the Blackstone backed Embassy Office Parks. Following its debut in March 2019, the Embassy Fund rocketed in value by 35%, going on to report a 15% increase in operating revenues over the final quarter of last year and then distributing a whopping $65 Million to Unitholders. Perhaps, unsurprisingly in that light, Bengaluru based Prestige Group has also now signalled its intention of seeking a REIT listing to monetise part of its office portfolio (reported to be projecting $12.9 Million in exit rental income) and RMA, Godrej Properties, as well as Pune based Panchshil Realty, is also on the prowl. 

That’s the difference a favourable and stable interest rate environment can make, and its why commentators are now forecasting that over the next three years REIT Funds on the subcontinent will raise $25 Billion, listing some 150 million square feet of rent yielding properties in the process.

Find out more about Modulex 

Modulex Construction is the World’s largest and India’s first Steel Modular Building Company, working to meet the opportunities of India’s real estate markets in a practical and focussed manner. It was established by Red Ribbon to harness the full potential of these fast-evolving markets and deliver exciting opportunities for investors: because, when it comes to investing in property on the subcontinent, nobody knows its markets better than Red Ribbon.

Executive Overview

The subcontinent’s real estate markets are being driven forward by an unprecedented population growth on the subcontinent which will soon make it the most populous nation on earth: rapidly expanding and increasingly urbanised, India’s new middle class has more to spend than ever before and a roof over their head is usually top of the wish list. So I’m not surprised to see the Reserve Bank so anxious to create the fiscal conditions in which its newly created REIT industry can thrive.

And goodness me how it’s thriving…

But there’s more than one way to meet this pent up demand and avoid the dangers of REITS being forced to take on the carry, and that’s to minimise the all too lengthy and too often perilous lead-time between breaking ground and completion of a traditional construction project.

Modular Construction doesn’t make on the carry at all…

It doesn’t take years to plan and deliver, it costs less than traditional construction techniques and it delivers much more quickly and reliably no matter how challenging the externalities might be. There’s virtually no chance of a Modular Project remaining uncompleted.

Look at what the Government’s doing, not what it says

By India, News No Comments

India’s Electronics and IT Minister, Sanjay Dhotre, has confirmed his Government is bracing itself for another step towards a fully regulated Blockchain economy with publication of its latest Policy Paper: The National Level Blockchain Framework, and at its heart is a high-level route map for distributed ledger technologies focused on a single infrastructure base for multiple user platforms. In other words, Blockchain’s going to be big in India and as Mr. Dhotre put it in his written Parliamentary answer to Lok Sabha it will have “important potential applications in different areas such as Banking and Finance”…As Basil Fawltey would have put it, Sanjay Dhotre is a specialist in stating the Bleedin’ Obvious.

Blockchain will indeed have important future applications, and not just in Banking and Finance either.

Mr. Dhotre’s written reply also provides further confirmation that Prime Minister Modi’s Government is set in its intention to re-fashion the subcontinent as a Blockchain Centre of Excellence, where innovative distributed ledger platforms will be created and developed as part of the so-called Sandbox Regulatory changes that have been in place since the middle of last year and are now starting to generate some positive results.

And let’s not forget either, all this is happening despite the Government maintaining an industry-wide ban on cryptocurrency support finance and standing full square behind the Reserve Bank as it continues a hopeless defence of its 2018 decision to implement the Government’s policy: a decision that now makes Boris Johnson sound like Themistocles and would have crashed and burned months ago had it not been for the Supreme Court’s latitude in giving the Reserve Bank an opportunity to change its mind. No sign of that happening yet though (for the fourth time of asking)…

But despite all this, the Modi Government has still managed to persuade the influential Centre for Development of Advanced Computing and the Institute for Development and Research in Banking Technology to support its latest initiative, neither of them being particularly well known for Blockchain or Cryptocurrency aversion. Indeed, the Government itself is involved in key collateral projects including prospective authentication of academic certificates (with a proof-of-existence framework), vehicle life cycle oversight and hotel registry management. Not so much a wolf in sheep’s clothing as a fully-fledged sheep.

In November last year, Tech Mahindra announced that it was teaming up with the Netherlands-based Quantoz to provide secure digital payments and Tata Consultancy Services have launched a multi-brand consumer loyalty platform on R3’s enterprise Blockchain Corda. So where the Government is heading others will obviously follow if not positively take the lead. Even its own Defence Minister Rajnath Singh has started to look at potential military applications for Blockchain.

 Invest in North Block Capital Fund

North Block Capital Fund is structured specifically to make the most of the exciting opportunities India has to offer, launching in Blockchain DLT and Crypto Currencies. It draws specifically on the company’s unparalleled expertise in the subcontinent’s markets because when it comes to India, nobody understands those markets better than Red Ribbon.

Executive Overview

I’ve got no doubt that Blockchain has a very real potential to change the way we all do business in the future and more and more it looks like Cryptocurrencies too will become part of its single, unified regulatory structure.

Despite deliberately dampening comments last year from various Ministers and Functionaries, as well as the Reserve Bank’s increasingly hopeless defence of the claims against it in the Supreme Court, none of the Government’s recent actions and statements would suggest anything other than a long term, fully regulated Blockchain environment on the subcontinent. 

A Scattering of Bricks and Girders…The Indian Government is stiffening some spines

By India, News No Comments

A Power Station that’s only nine-tenths built is nothing but a scattered pile of bricks and girders and the occasional builder looking for somewhere to plug in a kettle: all the value is in that crucial last tenth of construction, and until it’s finished you haven’t got a Power Station at all. It’s worthless. That’s the problem with Project Finance, you pump millions into something that takes years to plan and more years to complete and right up to the last moment that crucial something isn’t really there at all. And if you can’t even see your funding security, let alone sell it, completion becomes a nerve-jangling test of nerve and resolution, which is why so many construction projects come to nothing. Look no further than the crumbling, still unfinished mega Port Complex in Sri Lanka… it’s not really a mega Port Complex at all, just a scattering of bricks and girders after the Chinese financiers lost their nerve, took away their diggers and scuttled back to Beijing.

It’s all a question of nerve and resolution, and that’s exactly why in these uncertain times Governments sometimes have to step in and stiffen some spines along the way: a lesson that was lost in Sri Lanka (hence the concrete and girders), but it’s a lesson the Indian Government of Prime Minister Modi has now taken on board.

Historically the subcontinent’s property markets have been bedevilled by unfinished housing projects, with developers running out of finance and leaving behind yet another concrete wasteland for children to play in and the homeless to find such shelter as they can. And that’s just the point: bearing in mind India’s rapidly burgeoning urban population and its pressing shortage of affordable housing stock, this all to public waste of resources has been little short of a disgrace. But not any longer…

Last month the Government approved the creation of a $1.4 Billion Fund which will be deployed to complete at least 1,600 unfinished housing projects across the country, and there will also be an additional $2 Billion available for much-needed project finance from state-run financial institutions. The Chairman of Mumbai based Anarock Property Consultants, Anui Puri, confidently predicts the approved funds are likely to “rescue thousands of homebuyers who have invested in blocked projects”, and coming from Mumbai he should certainly know what he’s talking about. At a more Macro level, Reuter’s sector report also predicts a market bounce over the coming year as the Government’s initiative starts to gain traction: 11 out of 15 analysts polled took the view the new Fund would “significantly boost demand” with average national house prices set to rise by 3% next year and 4.3% in 2021.

Find out more about Modulex 

Modulex Construction is the World’s largest and India’s first Steel Modular Building Company, working to meet the opportunities of India’s real estate markets in a practical and focussed manner. It was established by Red Ribbon to harness the full potential of these fast-evolving markets and deliver exciting opportunities for investors: because, when it comes to investing in property on the subcontinent, nobody knows its markets better than Red Ribbon.

Executive Overview

The bigger the project the bigger the headache, and it can certainly be frustrating, devastating even to find things faltering in the final stages of development. So it certainly has to be a good thing that the Indian Government is taking steps to ease that crucial final stage of delivery, especially bearing in mind the subcontinent’s pressing need for affordable housing where a rapidly growing and increasingly urbanised population has created demand levels like never before.

But of course, it never pays to focus exclusively on one solution only, and to my mind, Modular Construction is an equally important weapon in the Indian Government’s armoury to address this pressing issue.

For a start, a Modular Project doesn’t take years to plan and deliver, it costs less than traditional methodologies and it can deliver reliably, no matter how difficult the externalities might be. In short, there’s virtually no chance of a Modular Project remaining uncompleted. 

So whilst we should all support initiatives of the kind launched by the Indian Government last month, we mustn’t forget there are other ways forward and sometimes they’re much better ways too…

Pandrah Minats of Fame…India’s Real Estate has its Minsky Moment

By India, News No Comments

Hyman Minsky finally got his fifteen minutes of fame – what Wall Street came to call “the Minsky Moment”- when everything he said about the instability of a sliced and diced, over-hyped subprime property market turned out to be true after all. He sadly died twelve years before his moment arrived, but it didn’t make it any less important. As far as Minsky was concerned investment (in its pure sense) is by far the most important driver of economic growth: far more important than government spending levels, consumer spending and the general trajectory of money wages. Because while money wages and government spending can enhance or dampen economic stability (or relative instability as Minsky would have it), investment is the key to growth and it is inextricably bound up with financial markets, capital asset prices and, of course, profits.

And on that basis Indian real estate is currently having fifteen Minsky Minats of its own…

Mumbai domestic property sales jumped to their highest levels in four years by the end of 2019, with developers switching focus to affordable housing projects rather than the multi-billion rupee, high rise apartment blocks (take note Donald Trump). And despite a perceived tightening in the subcontinent’s finance markets, local sales rose by 22% with the same trend being mirrored across the subcontinent where new starts in seven major cities were up by an equally healthy 21%. Compare that with London, where comparable available data for sales and new starts showed 1.3% growth and a fall of 11% respectively: and with just 39,500 new UK starts in the third quarter, this means 87 new homes for the 3.4 million young adults still living with their parents.

Perhaps predictably, Indian commentators are now pointing to these localised property trends as “clear evidence” of a pent up demand in residential markets, with the Chairman of Anarock Group, Anuj Puri, placing particular emphasis on a resurgence in affordable housing: “One of the major factors that helped Mumbai become the showstopper in 2019 was a conscious decision by developers to bridge supply and demand between the competing demands of commercial and residential property…Mumbai saw maximum supply in the affordable housing category which is something unusual for this market.”

But what’s so Minsky about all that?

Well, in stark contrast to the surge in sales of affordable housing, overall growth in India’s commercial property markets slowed to 5% over the course of 2019, albeit from a stellar base of 17.6% in 2018: and that was largely due to a semi-toxic cocktail of demonetisation (obviously: when in doubt blame demonetisation), a new regulatory and tax structure widely thought to have placed a chill hand on commercial developments and, perhaps most of all, a squeeze in available non-bank finance (shadow lending), with sector participants suffering noticeably over the last year and one of them in particular, Dewan Housing Finance, being hit by interest defaults, a moratorium on new deposits and delayed commercial debt repayments (citing “cashflow problems” of course: when in doubt blame demonetisation and cashflow problems). And to state the obvious, Dewan is not long in affordable housing investments which is precisely the point…

According to Minsky’s hypothesis, this kind of squeeze in available finance will reduce investment levels because there then is a natural tendency for the value of capital assets to decrease invalidation of existing debt decisions: in other words, a (forward) decision to invest in capital assets is necessarily coloured by the (existing) liability structure of the business, with cash flow and current asset values acting as the two ends of a decisionmaking see-saw. And that toxic cocktail we were talking about just now, it might have eroded confidence in commercial developments, but it’s hardly touched affordable housing at all: particularly as these projects are still supported by a series of major initiatives introduced by Prime Minister Modi’s Government (including further incentives in the most recent Union Budget).

The fact is residential property and affordable housing simply aren’t so dependant on non-bank finance, and India’s regulatory and tax regimes are positively working in their favour meaning capital asset values remain strong as do profit levels. As a result, the commercial and residential property markets are gradually peeling apart: asset values in affordable housing have increased and tipped the decisionmaking seesaw in favour of new investment, and that’s what’s given rise to the current boom.

And for those still in search of additional evidence, look no further than the unsold housing inventory which declined across India by 4% in 2019: In the same period average residential prices increased by 1% and it’s all now buttressed by the government’s $3.5 billion safety net for developments still in danger of succumbing to the toxic cocktail.

Hiram Minsky would have been pleased…

Find out more about Modulex 

Modulex Construction is the World’s largest and India’s first Steel Modular Building Company, working to meet the opportunities of India’s real estate markets in a practical and focussed manner. It was established by Red Ribbon to harness the full potential of these fast-evolving markets and deliver exciting opportunities for investors: because, when it comes to investing in property on the subcontinent, nobody knows its markets better than Red Ribbon.

Executive Overview

I was fascinated to see the latest residential property sales figures from India: the market is certainly buzzing and recent incentives introduced in the Union Budget look set to see it surge even further forward.

Minsky moment or not, it’s a game-changer.

Another Year, another Union Budget…A Tweak and a Tune will do for India’s Economy

By India, News, United Kingdom No Comments

Its that time of year again…another Union Budget, and in the wake of seemingly unremitting IMF grumbling and post-Christmas chill, it’s time to find out if India’s economy needs a little tweaking and tuning or something more radical. And given Nirmala Sitharaman has just delivered the longest Budget Speech for more than six years, it would be peevish and cruel to leave you in suspense any longer: for the third fastest growing economy in Asia, a tweak and a tune will do just fine.

The Finance Minister announced a series of groundbreaking reforms, designed to sustain growth and reach out more to the poorer, mostly rural sections of the country: but with a clear message that the economy is still on track and set for further growth in the years ahead, especially in the all-important Affordable Housing sector.

Say what you like but Prime Minister Modi’s Government still has its political antennae finely tuned to the key components of economic growth, and with a rapidly expanding and increasingly prosperous middle class driving retail expansion like never before, Nirmala Sitharaman wasn’t about to forget the importance of consumer spending. With shades of Margaret Thatcher, she announced a series of lower income tax rates in return for individual taxpayers waiving current exemptions and deductions. The resulting fiscal incentive is worth something in the order of $5.6 Billion, which will certainly be enough to give the economy a further boost but for any doubters and sceptics still left the Budget also includes provision for taxpayers to opt-out and keep their existing deductions if they want to. So what’s not to like?

But it’s certainly not all about the middle class either: those earning less than $7,000 a year will now be exempt from taxes altogether, which should significantly improve the condition of the rural poor in particular: a section of the public all too often forgotten by parties of all political complexions in the past.

And then, of course, Affordable Housing had its own special place in the Budget, just as it has for the last ten years: the process of approving loans within the existing (highly tax-efficient) government scheme will be extended by a further year to March 2021, and property developers will get an additional tax holiday on qualifying profits. The impact of that sort of incentive is already being felt in a resurgent residential property market across the subcontinent, and in Mumbai in particular.

So having looked after the roof over the heads and given India’s burgeoning population fresh license to join in another wave of consumer spending, the Finance Minister’s attention then turned to business: dividend distribution tax (a modern form of ACT) has now been abolished, with all its despised apparatus of surcharges, red tape, and bureaucracy. Businessmen and women across India will have heaved a sigh of relief, as will any accountants and bookkeepers anxious to get home from the office before 11.30pm.

The Government will also increase the investment limit from 9% to 15% for foreign investors holding corporate bonds, in addition to which a raft of Government Securities will be open to foreign participation for the first time as part of an ongoing project to open up the subcontinent to the world.

Then the Finance Minister turned to some of the bigger elephants in the Chamber: she invoked the so-called “escape clause” in the Fiscal Responsibility and Budget Management Act:  revising a 3.8% deficit target from 2019/20 to 3.5%. Less than half a point but Nirmala Sitharaman has never allowed fine detail to obscure economic reality, and the revision comes with increased infrastructure commitments too: including $26.3 Billion in support of a new National Infra Pipeline with the ambition “to improve ease of living for every citizen of our country” not to mention creating additional employment across the subcontinent. Again, what’s not to like?

And finally, last year’s PMC Bank failure was never going to be far from the rostrum, prompting the Minister to announce a hike in Bank Deposit Insurance Cover from $1,450 to $2,100, so protecting a much broader constituency of depositors. For those of us who lived through the anguish of BCCI in the 1990s, it will be clear just how much of a boost this kind of initiative that can give to depositor confidence. There will also, in the words of the Minister, be a more “robust mechanism to monitor the health of scheduled commercial banks and assure depositors that their deposits are absolutely safe”.

Quite right too, and this closing statement of intent also underpinned the steady, realistic and well-modulated tone struck by Ms. Sitharaman in her Budget. She is to be congratulated.

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Executive Overview

We all waited to see whether India’s Finance Minister would keep to a steady course or start to apply the brakes: and in this year’s Union Budget we got the answer.

It’s full steam ahead, with a further emphasis on consumer-driven growth and additional incentives for overseas investors.

That’s welcome news for Asia’s third-fastest going economy, the essentials of which are still so obviously sound.

No Big Bong but a Bigger Bang…What does the Withdrawal Agreement mean for Britain?

By India, News, United Kingdom No Comments

Some of the facts about Brexit are simply inescapable and two of them in particular: the British Isles are a collection of relatively small islands and the United Kingdom, which makes up most of them, will be leaving the European Union at 11.00 pm this Friday. No more straight bananas; no more sausages that aren’t sausages and plenty more milk chocolate without milk. The UK will finally be out and it will be getting £350 Million a week extra into the bargain (or perhaps not). The island race will finally be set free to ply its trade across the four corners of the world and not just with its single biggest market across the Channel.

Because one of those inescapable facts is that since the grant of a first Royal Charter to the East India Company in 1600 and right down to the dog days of the post-colonial Empire, trading with the rest of the world has been an economic necessity for Britain’s economy. India’s Railways were built with British steel and they kept British workers in jobs, just as much as Indian cotton kept Lancashire’s mills alive and spinning this same economic necessity is just as vigorous and inescapable today…

In 2015 the UK imported nearly three times as many agricultural products as it exported and a consistent year on year decline of 2% means it is now only 60% self-sufficient in food. By 2017 the country’s biggest commodity exports by value were fuel (£165.7 Million), drinks and tobacco (£109.2 Million) and manufactured goods including cars (£107.9 Million), while on the other side of the ledger imports of fuel accounted for twice as much and manufactured goods (including cars) were broadly equal both ways. These islands are bound up as a trading nation par excellence and like a shark, it has to keep moving forward to survive.

But, you might be asking, what about that other inescapable fact? What about Brexit?

At the stroke of 11.00 pm this Friday (not the stroke of Big Ben obviously, that’s too expensive) the United Kingdom will leave the European Single Market and its Customs Union, but until 31 December this year, it will continue to be treated as a Member of the European Union: that long lapse of time between this Friday and the end of the year is the much-vaunted Transition Period.

Well, it sounds like a long lapse of time but in fact, it’s considerably shorter than it might have been: the original transition period agreed by Theresa May (remember her?) was left unchanged by Boris because when he wanted to keep his replacement deal in line with the EU’s current Multinational Financial Framework, in other words, he didn’t want to make another budget contribution. As a result, about half of the original 21-month Transition Period has been lost making it wildly improbable that a long-term trade deal can be negotiated before Big Ben finally chimes at the end of the year.

And that’s not a matter of minor importance: the whole point of the Transition Period is to allow time for the negotiation of a new UK/EU Trade Deal and avoid the dire prospect of what most of us had already grown tired of calling a No Deal Cliff Edge. Bearing in mind India has been trying to negotiate a trade deal with the United States since 1972 and EU negotiations with Canada took seven years, it might be pushing it to expect a brand new trade deal to emerge in just eleven months (less than a third of the time Anne Boleyn was married to Henry VIII, and look what happened to her). All of which now makes the prospect of a no-deal exit more likely and that’s something the unlikely triumvirate of the CBI, TUC and financial markets globally have all (for good reason) set their faces against.

For all the huffing and puffing of the European Research Group (remember them, anyone?) the Withdrawal Agreement also requires the UK to follow EU law and related decisions of the Court of Justice of the European Union during the Transition Period (Article 127(1)) if you’re interested). The UK must also adhere to the EU’s four freedoms (including freedom of movement), continue to abide by EU Customs Rules and so cannot during the transition period conclude any trade deals with third-party countries. And all of this happens whilst the UK has no representation at all on the EU Commission, no members in the EU Parliament and no presence in the Court of Justice. What was all that about being a vassal state?

But, it’ll all be over by December when the United Kingdom can finally shake off its chains, imaginary or otherwise. And then this relatively small collection of islands in the cold northern climes will do what it has always done best: it will trade with the rest of the world and makeup that 40% (and growing) deficit in domestic food production, it will find new markets for cigarettes and alcohol and it will stop all those bananas from going straight.

There may though still be a shiver of apprehension that in a post EU world, India doesn’t need that British steel anymore (even if Britain was making it) and Lancashire’s mills have been silent for more than half a century so Indian cotton goes elsewhere. India is thriving because of its new, global economic outlook but it remains to be seen whether the United Kingdom has either the appetite or ability to do the same, having had no independent trading policy at all for nearly 50 years.

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Nobody understands the fundamentals of the Indian economy better than Red Ribbon Asset Management, which has placed the subcontinent at the heart of its investment strategies since the company was founded more than a decade ago. Drawing on unrivalled knowledge of local markets with an expert team of more than a hundred advisers working in India’s economic hotspots, the Red Ribbon Private Equity Fund offers unique opportunities to share in this potential.

Executive Overview

Brexit will change the UK’s outlook on the world and the way it will trade across a new range of global markets, but it will also change the way the UK is seen across the world. Whether that is a good or a bad thing I don’t know, but I do know a lot will depend on the successful negotiation of a slew of new trade deals which certainly can’t be taken for granted and will undoubtedly take time to complete. At the last count, the Government was looking to put more than 600 new trade treaties in place by December, and I can’t help thinking that is wildly optimistic.

It could well be that after all the uncertainties and largely self-inflicted injuries caused by Brexit over the past four years, the real work is only just beginning.

I’m sure we’ll all be keeping a close eye on developments.

India is already a Technology Super Power…as it prepares to step up a gear, imagine what’s coming next

By India, News No Comments

Over the past year the Subcontinent’s IT Services Sector has grown to $181 Billion, making up nearly 45% of total service exports and contributing 7.7% to GDP: and as if that wasn’t enough India is locked, loaded and ready to step up another gear as it embraces new technology paradigms like Blockchain and AI, with a slew of small to medium-sized businesses based around Bangalore already reskilling to reflect India’s increasing importance as a global technology hub. In every sense of the words, India has become a technology superpower.

And where it was once synonymous with low cost, outsourced software, India is now spearheading global innovation as well. So what’s behind this sudden step-change, turning an essentially outsourced software backwater into a world leader?

Well, first and foremost don’t underestimate the importance of the subcontinent’s youthful demographic: one of the largest in the world and as devoted as young people anywhere to their iPhones and social media platforms. India currently has more than half a billion Internet subscribers and according to Mckinsey, this will create e-commerce and digital supply chain worth $35 Billion annually within the next six years. The fact most youngsters would seemingly rather lose a limb than their iPhone has a lot to do with that: they provide the raw collective drive for IT innovations of the type India is going through at the moment and it would be foolish to underestimate their potential.

Added to that India also has a thriving start-up an ecosystem where Government incentives are now attracting Foreign Direct Investment (FDI) like never before, with training programmes and a regulatory infrastructure that is genuinely supportive of digital growth: precisely what those thousands of small to medium-sized businesses in and around Bangalore. The Modi Government has also identified IT as one its twelve so-called Champion Service Sectors and its policy think tank, the snappily named NITI AAYOG, has just announced a national programme for mainstream adoption of AI across all Indian business.

Then there is the Government’s new Blockchain pilot project for Social Welfare, working with prominent healthcare providers such as Apollo Hospitals and Strides Pharma to tackle the increasing problem of counterfeit pharmaceuticals on the subcontinent and provide greater support for government based welfare schemes. 

In short, there can be no doubting the Government is putting money and considerable effort into where its mouth is…

Just look at the recent success stories: Flipkart, Ola, PayTM and Oyo all of which have grown to multi-million dollar businesses over the last decade, and some of them over a considerably shorter period. And these Indian Unicorns already have their eyes and horns on international markets, with Ola recently expanding into Australia and Oyo set to follow in its wake. 

Oracle India’s CEO, Shailender Kumar, recently predicted potentially explosive growth if India’s IT service companies were to combine with these new technology titans: unlocking fresh business opportunities in an increasingly ambitious and near white-hot environment.

And he’s right… just imagine what’s coming next!

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Nobody understands the fundamentals of the Indian economy better than Red Ribbon Asset Management, which has placed the subcontinent at the heart of its investment strategies since the company was founded more than a decade ago. Drawing on unrivalled knowledge of local markets with an expert team of more than a hundred advisers working in India’s economic hotspots, the Red Ribbon Private Equity Fund offers unique opportunities to share in this potential.

Executive Overview

Most economic commentators would identify Blockchain and AI as the key drivers of future radical change in international labour and capital markets, and I think they’re right: so it really is impossible to underestimate the stark potential of India’s resurgent IT sector given it is focusing precisely on those two areas, with increasingly decisive support from the Modi Government in the form of training and regulatory initiatives. 

No wonder then that FDI into Indian technology is currently running at an all-time high, and small surprise IT comprises such a significant part of Indian GDP. IT will be a powerhouse for economic growth.

These are exciting times and they are creating unrivalled investment opportunities: we will all be watching carefully to see what happens next.

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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