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

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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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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

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?

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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.

Unaffordable Housing and a Bubble Waiting to Burst…It’s a Tale of Two Cities

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The average price of a home in London is now £466,824 and take home pay in the Capital (after tax) currently averages £2,250: so your average Londoner now has to divert no less than 17 years and three months of earned income just to pay off the capital cost of the home that may or may not turn out to be his castle. And when you take interest into account (at a modest notional 2%) the actual final outlay will cost more than £640,000, which will take 23 years and six months to pay off assuming nothing is diverted to fripperies and whims along the way, like food, clothes and heating. UK property prices have crashed twice in the last thirty years: between 1990 and 1992 and in 2007 to 2010: with this level of market disequilibrium, dystopian economics and price inflation how long can it be before the next crash?

Things couldn’t be more different in India, where the Affordable Housing Program is steadily and successfully working to bring homes within the reach of those living on average incomes. Last month for example Lodha Group launched its Crown Housing brand that will make properties available in Mumbai for as little as £28,000, so that families earning just £567 a month will be able to pay off the capital cost of the purchase in just over four years: thirteen years earlier than their London counterparts.

With an appropriate sense of understatement, Lodha’s eponymous Managing Director Abhishek Lodha summed up the overriding mission and commercial dynamic behind the Crown initiativeWe believe in the Prime Minister’s vision of ‘Housing for All’, which will help revive the economy and that’s why we have embarked on this round of investment. It is quite amazing that a family which earns just Rs 50,000 per month will be able to own a home”.

Indeed it is…try doing that in Camberwell.

But it’s just one example of the extraordinary resurgence in the subcontinent’s real estate markets over the last decade, fuelled by a burgeoning and increasingly middle class and urbanised population that is now finding home ownership within its grasp.

At the other end of the spectrum, the snappily if utterly forgettably named MMRDA (Mumbai Metropolitan Regional Development Authority to you and me) declared itself in September to be in “total development mode”, inviting tenders for major projects worth £229 Million and targeting foreign investors including Goldman Sachs and AIA Group. And that comes hard on the heels of previous mammoth projects in the City including the Mumbai Trans Harbour Link and a 14 line, 337 kilometre long Metro Network. 

Small wonder then that one of Asia’s largest diversified real estate groups, CapitaLand has also now announced its plans to double property investments on the subcontinent from $3.3 Billion to $7 Billion within the next five years. 

It really is a Tale of Two Cities.

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 on the subcontinent, nobody knows its markets better than Red Ribbon.

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 on the subcontinent, nobody knows its markets better than Red Ribbon.

Executive Overview

Even on the most superficial analysis, it’s hard to conclude the London property market is anything other than asymmetric at the moment and whether that’s sufficient to precipitate another crash, who knows: I certainly don’t, but I do know instability of this kind is the very last thing investors need during a period of radical political and economic change.

That’s why my primary focus is still very much on Indian real estate markets where not only are the demographic trends supportive of continued market growth but the Government there is also full square behind keeping market momentum going with initiatives such as the Affordable Housing Program.

These are the trends Modulex will continue to build on for the benefit of our investors and I’m proud Red Ribbon is playing a part in the project.

 

India - The case of Investment - Red Ribbon Asset Management Plc

India: The case for Investment

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United Kingdom is the gateway to many investment opportunities, of which India is one to take notice of. India’s economy and business landscape are changing, ushering in a period of growth, prosperity and investment opportunities.

Let’s look a little more closely at just a few of the more compelling reasons why investing in India is an opportunity you can’t afford to miss:

The Indian economy is the fastest growing major economy in the world. It surpassed China in 2015 and is forecast to expand by 7.7% in 2018, before accelerating to 8.3% in 2019. India’s population is also expected to increase from 1.34 billion and exceed that of China, within the next five years.

As 10 million countryside inhabitants move into India cities, per annum, urban society across the country is increasing. Those new and growing societies are increasingly wealthy, sophisticated and technologically literate, providing a platform for growth, fuelled by demand.

India also has an incredibly supportive government that’s working hard to facilitate economic growth and a fundamental change in the way the population lives and interacts. PM Narendra Modi has introduced a single tax base across India’s 29 states, while the regulatory environment has also radically transformed.

United Kingdom – gateway to India

United Kingdom is an economy that has a proven track record at identifying areas and regions that have a lot to offer. That’s why India is already among the countries where investments and partnerships can be easily accessed via United Kingdom.

As a UK-based business, Red Ribbon Asset Management Plc is an obvious partner to access those Indian investment opportunities.

Not only do we understand what is driving India’s economy and investment boom, at Red Ribbon we know how different areas of investment are performing. Our well-connected Indian-based team, provides hands-on support to our UK-based investment specialists. It’s a successful partnership, that ensures we identify the right investment for each and every investor we work with.

Red Ribbon has been involved in numerous major projects in India and the UK, that have proven successful in both execution and from an investment perspective.

But, that’s not all. At Red Ribbon we believe investments should offer benefits to everyone involved. Aligned with our philosophy and core values, all our investments are morally acceptable, provide measurable social and environment impacts and deliver strong financial returns.

As you can see, Red Ribbon Asset Management Plc has been quick to recognise the potential in India and through us you can access an array of investment opportunities.

Red Ribbon brings you a gateway into investing in India, offering bespoke services in wealth management, private equity and real estate. Our strong network of contacts means we know India from the inside and outside. That’s just one reason why we’re ideally placed to identify the best opportunities as they arise.

Red Ribbon CEO, Suchit Punnose said:

India is more than just an exciting investment opportunity, it’s also a driver to global economic growth and that’s why Red Ribbon has long held the view that no investment portfolio can be considered properly balanced unless at least 10% of its holdings are deployed in Growth Markets and, of course, for us that has always meant India in particular.

And of course this vindicates Red Ribbon’s decision in 2008 to place India and its fast growing markets at the heart of our investment strategies from the very start. Our expert advisers now have an insight into what makes the subcontinent’s markets tick, what makes them so profitable and where the best opportunities for above market rate returns are likely to be found.

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Modular Construction Solution - Modulex - Red Ribbon Asset Management

Modular Construction: A Global Construction Solution

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Lets get straight to the point: the UK construction industry has a problem, three problems to be precise. First, an aging demographic (mostly with their own homes) combined with a impoverished younger population (mostly without); secondly, a lack of new companies entering the sector (think Carillion) and, third, a marked decline in skilled labour that isn’t likely to improve anytime soon with Brexit on the horizon. All of which makes the UK Government’s target of building 300,000 new homes every year until 2020 look distinctly shaky if only because, according to Arcadis Target, this would require 400,000 new skilled workers to be added every year from 2017(one every 77 seconds). Not particularly likely given lack of skilled workers is a core component of the problem.

But the proof of the pudding is in the eating. In 2017 the Government fell 80,000 short of its target (nearly 30% short), which is why Modular Construction has now leapt up the list of UK Policy priorities: if you can’t change the system, change the method and no existing building technology is better equipped to deliver quality housing at pace than Modular Construction. In fact, off site prefabrication delivers units at three times the rate of conventional technologies so its just what the Government needs to meet its target…

Except no matter how hard Government seems to try, modular construction in the United Kingdom is still at cottage industry levels, largely because of the first of those three factors we just mentioned: an aging demographic and an impoverished younger population acting together effectively to staunch demand for innovation.

How different then things are on the subcontinent.

Rather than an aging demographic, India has an increasingly youthful population, increasingly urbanised and increasingly wealthy as well as being drawn inexorably to live and work in the subcontinent’s major conurbations (Mumbai and Bangaluru in particular). And it is this demographic trend that is creating a surge in demand for affordable urban housing added to which, unlike the UK, India has no shortage of new construction entrants or skilled labour.

Again, the proof of the pudding is in the eating… Knight Frank’s latest India Real Estate Report found a surge in the number of new project launches for the first half of this year, up by 46% and with a marked increase in affordable housing starts too (making up 51% of supply). Most Indian Cities are also showing exceptionally strong rental growth, with Bengaluru in the lead at 17% year on year. All in all it’s a very different picture from the UK but what the two countries do have in common is housing targets: specifically those established in India by the Affordable Housing Programme which are if anything tougher than those confronting the UK Government.

That’s where Modular Construction comes in, because in contrast to the position in the former mother country, off site prefabrication on the subcontinent is very far from being a cottage industry. Favourable economic conditions and underlying demographic trends have instead made it an essential component of India’s drive to meet its public housing targets by 2022. The sheer pace and quality of delivery offered by modular technologies (not only for homes but hospitals, schools and office buildings too) simply can’t be matched by conventional building techniques: something the UK Government seems to be waking up to, if perhaps a little too late.

Red Ribbon set up Modulex Modular Buildings with the intention of building on these demographic and economic trends, recognising the outstanding capacity of Modulex to deliver above market rate returns for investors by tapping into high demand levels in India’s real estate markets. Modulex provides an exciting opportunity for investors to participate in this key sector of the fastest growing large economy in the world.

Red Ribbon CEO, Suchit Punnose said:

I found it interesting to compare the current strengths and weaknesses of the Indian and UK construction sectors where the same three factors for change seem to be working in wholly opposite directions (to India’s advantage). But more than that, I was also struck that both sectors have now come to the conclusion that view modular construction has to be a key component in delivering the significant number of new units required in each country. I know, for example, that the House of Lords Technology Committee has recently started an investigation into the advantages off site prefabrication offer in helping meet policy targets which seem at the moment to be running away from the Government. Perhaps though, as the article points out, that may all be too little too late.

For our part, and with Red Ribbon’s roots set deep in the Indian markets for over a decade now, it is a trend we have obviously been following with great interest for some years. That’s why we decided to take a pivotal role in establishing Modulex Modular Construction on the subcontinent and its why we remain excited at its prospects of delivering above market rates for our investors in such a resurgent real estate market. We firmly believe Modular Construction will play an essential part in India’s future.

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Interest Rates India - Red Ribbon Asset Management

Interest Rates: What the Reserve Bank of India can teach the Bank of England

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Inflation, as it happens, is also attracting considerable attention not only on the Monetary Policy Committee of the Bank of England but also at the Reserve Bank of India which anticipated recent events in Threadneedle Street by raising its own interest rate to 6.5%. That came hard on the heels of a hike of 0.25% in June, which was the first rate increase on the subcontinent for more than four years. And given the two Central Banks now appear to be moving in ever closer lockstep on the issue, it’s no surprise that the smart money in the City is on Urjit Patel to replace Mark Carney as Governor when the first overseas national to hold the position returns home next year to spend more time with his money. Urjit Patel is currently Governor of the Reserve Bank and his own three-year term ends next July. Mark Carney’s time is up next June, so If nothing else, it looks like good timing.

And should Urjit Patel eventually end up in the hot seat he could do worse than draw some lessons from the underlying reasons that are driving inflationary growth in India at the moment, which stand in stark contrast to those troubling the former mother country. As a seasoned economist he might also remind himself of the old adage that there is no inflation in a graveyard: consumer demand can only fuel inflation if consumers have something to spend.

The UK’s headline inflation rate of 2.4% is barely driven by consumer spending at all for the simple reason that domestic consumers have very little surplus income to spend. Such pressure as there is on that front is driven rather by the biggest rise in UK consumer borrowing since the global financial crash of 2008. Of much greater importance is the increased cost of imported goods due to a weakened sterling coupled with (inevitably) ongoing fears over Brexit, so the decision to raise rates last week had much more to do with bolstering the value of sterling going forward (although, in the light of market movements in the aftermath of the announcement, that may itself be something of a triumph of hope over experience).

Now lets take a look at India.

Last’s week’s 0.25% rate rise on the subcontinent was primarily a response to rising crude oil prices on international markets. India has spent 12% more on imported oil since April this year, reflecting an upward pressure in key prices and, to a certain extent, a 3% depreciation in the value of the rupee against the dollar over the same period (dollars being, of course, the lingua franca of oil). But that’s nothing in itself to be worried about because there’s a reason why India is buying all this extra oil: it is (quite literally) fuelling the economic expansion which is now expected to see India’s GDP grow by 7.25% this year; and with limited reserves of its own the subcontinent is bound to be vulnerable to adverse price movements on global markets. That is a necessary cost of its startling economic success.

And as for the other element of the inflation equation, we hardly need reminding of India’s unprecedented surge in consumer demand. With the fastest growing population on the planet, an increasingly younger demographic and steadily rising rates of average income, very little of this is leveraged with debt (unlike the UK) but India’s annual consumer inflation rate still hit 5% in June (the eighth month in a row that it has exceeded the 4% medium term inflation target). But again, that is hardly a cause for significant concern either, bearing in mind that the RBI target has an upper tolerance of 6%, which is above the current inflation return. After all, there’s no inflation in a graveyard.

So unlike the Bank of England, the Reserve Bank of India (although pursuing a similar monetary policy) has in reality simply trimmed its inflation projections rather than run scared of them, confident in the knowledge that it is not only still working within existing tolerances but also harnessing unprecedented economic growth. That’s why it has been able to maintain its well-rehearsed policy of neutrality: encouraging growth and keeping inflation under control. Urjit Patel might not be able to take that particular policy with him if he comes to London next year.

Red Ribbon Asset Management has placed India at the heart of its investment strategies since the company was founded more than a decade ago, and nobody understands the subcontinent’s potential for growth better than Red Ribbon. With an unrivalled knowledge of market conditions on the subcontinent, the Red Ribbon Private Equity Fund offers a unique opportunity to share in the potential of the fastest growing large economy in the world.

Red Ribbon CEO, Suchit Punnose said:

I had heard that Urjit Patel was being tipped to take over as Governor of the Bank of England when Mark Carney moves on next year, and for my part I think he would be an excellent choice. Certainly it would be a matter of great pride for every Indian to see him take the helm and build on his policy experience on the subcontinent, perhaps even (as the article points out) adding some of the subcontinent’s current economic sparkle to the UK economy.

And it is also interesting to note the radically different reasons for the Central Banks in each country making virtually the same monetary policy announcements in virtually the same week. Inflation is not always an enemy of sound economic growth, and in India’s case it seems rather to be an inevitable product of its own success. As the article says, there’s no inflation in a graveyard.

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Brexit - Free Trade - Red Ribbon Asset Management

Post Brexit: the enigma of Free Trade

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No less than 800 Indian companies currently do business in the UK, investing $5.95 Billion and generating revenues of $66.5 Billion annually. And the UK ranks 15th amongst India’s trading partners: at $18.2 Billion, it is the subcontinent’s fourth largest inward investor.

So what will Brexit do to that relationship?

The process of EU withdrawal has already proved its potential seriously to undermine the value of Sterling, and that’s important because Sterling receipts account for more than 15% of Tata Consultancy’s global revenues, and Tata is by no means alone amongst Indian companies investing in the UK. Indeed, fearing that a weakened Sterling rate will seriously inhibit future trade, the UK’s Export Credit Agency has already extended $6.4 Billion in credit facilities to companies trading with the subcontinent. The problem, of course, is that this is less than 10% of the revenues generated by Indian companies annually in the UK. Can we seriously expect Sterling to fall by less than 10% when Brexit finally goes live in less than a year?

Obviously not, which is why a Free Trade Agreement (“FTA”) with India is so important for the UK: bolstering weaknesses in the existing trading relationship with an aligned regulatory framework and restricted or zero tariff programmes. Research shows that an FTA would increase India-UK trade by $2.8 Billion a year, and British Ministers have been suggesting the process will be easily accomplished by the end of the “transition period” in 2020.

Hard experience suggests otherwise.

India currently has FTAs with just four other countries (all of which are parties to the ASEAN Free Trade Area) and it is in addition a signatory to BIMSTEC, a grouping committed to technological cooperation in the Bengal Bay Area…and that’s it.

The United States is a far bigger market than the UK, and Donald Trump has, well… trumpeted his desire for an FTA with India for some time, adding to all the trumpeting that has been going on for the last forty years, right up to the point where the US and India start suing each another and stop talking. The US sued India for Solar Panel Subsidy infringements two years ago and is currently threatening to sue again on India’s subsidies for its all-important farming constituency (mildly duplicitous given US protection for its own agricultural interests is legendary (chlorinated chicken anyone?)). There are also fierce disagreements between the two countries on textiles (hardly a minor matter for India), pharmaceuticals, steel (of course) and cars. Indeed, at the last count India was suing the US in 10 cases before the WTO and the US was countersuing in 8. So the chances of an FTA anytime soon between the two are…pretty much zero.

What, then, of the European Union: India’s largest trading partner with 13.5% of the subcontinent’s global trade. Surely India would have signed up to an FTA with Brussels by now?

Not a bit of it. The EU and India started talking about an FTA eleven years ago and stopped talking when Brussels cried foul on generic drug manufacture, Indian farming subsidies (again) and greenhouse gases … the talks have been stalled ever since.

So the next time you hear a member of the UK Parliament bursting a blood vessel to explain how easy it is to strike a Free Trade Deal with India remember: the odds are stacked against it. Better perhaps to forget Brexit and stay focussed on the success the two countries have already achieved together at corporate level, without any Treaties at all. Eight hundred companies investing in and doing business in the UK is, after all, something to be proud of in itself.

And, of course, the powerhouse that is the Indian economy, predicted to grow annually at 7.2% for the next decade, will continue to drive the global economy with or without Brexit. Nobody understands that potential better than Red Ribbon Asset Management, which has placed India at the very heart of its investment strategies since the company was founded more than a decade ago. With an unrivalled knowledge of market conditions on the subcontinent, the Red Ribbon Private Equity Fund offers a unique opportunity to share in that potential.

Red Ribbon CEO, Suchit Punnose said:

During a recent meeting of the Indian Professional’s Forum held at Chatham House in London (and sponsored by Red Ribbon) the Indian Ambassador was asked what he thought the prospects were of a Free Trade Agreement being signed between India and the United Kingdom after Brexit takes effect next year.

As with this article, the Ambassador didn’t rule it out: but he wasn’t overly optimistic either, pointing out that UK political interests were perhaps too prone to see India through the prism of Empire rather than, as India is more inclined to, regarding the UK as a smaller market than the remaining EU 27.

For my part I find it difficult to predict what the future holds in these uncertain times, but I draw comfort, as the Article does, from the strong trading relationship that exists already between India and the UK. We can expect that to re-calibrate itself after Brexit, but it’s not something we are likely to lose altogether and both countries will be stronger for it.

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India Private Equity Exits - Red Ribbon Asset Management

Exits and Entrances: A good year for Indian Private Equity

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According to this month’s influential Bain Report, Private Equity Exits grew on the subcontinent by more than 60% in 2017 (India Private Equity Report 2018): an unprecedented $15.7 Billion, up from $9.6 Billion in 2016 and making last year the best ever year for PE exits in India. The number of exits also rose in absolute terms: 211 in all, which marks 7% growth year on year. More importantly perhaps, given this is now the third successive year of growth in exit volumes and value (stretching back to 2015), those familiar with India’s Private Equity Segment will be relieved to move on to brighter uplands, in a sector which has historically been bedevilled by low exit rates.

So what is fuelling the trend?

Well, a lot of it is undoubtedly down to the increasing resilience of India’s Capital Markets and its improved regulatory structures, mostly introduced by Prime Minister Modi’s Government since 2015. Those are both critically important because private equity investment means taking a long term stake in a business and often working with existing management on re-gearing programmes leading to realising asset value. And in India that has often meant investing in small to medium sized family run companies, mostly conservative by instinct and almost all averse to disposing of the business. So without a disposal, just how are you supposed to get your money out? That dilemma lay behind the old (and happily now outdated) adage that in India it was “easy to invest but hard to exit”.

Not anymore though…

In excess of 50% of the subcontinent’s exits in 2017 were structured through Public Markets, including Initial Public Offerings (IPOs) where much improved Market systems and Regulatory frameworks have made it much easier to exit a PE venture by selling all or part of the stake without having to sell the business (even the most conservative family business will be happy with the outcome).

And it’s not hard to find practical examples of how this is all working out on the ground: take for example Tiger Global’s secondary share sale of Flipkart for $800 million last year (making use of the new market regulations) and Apax Partners’ partial exiting of IT giant, GlobalLogic for $780 million: where for the past three years Apax were returning in excess of 20% compound annual growth on its 96% holding in the company, and the 50% stake which was disposed of reportedly sold for 300% of the original investment.

A further factor pointing to the resilience and likely long term growth in exit values is the some $9 Billion of dry powder currently held by PE Funds investing in the Indian sector (according to the same Bain Report), signalling a broad parity with equivalent dry powder levels in 2016 and strongly suggesting that the overall potential and attraction of investments on the subcontinent is likely to remain unabated for the foreseeable future.

Red Ribbon’s Private Equity Fund offers a significant opportunity to participate in India’s resurgent markets, combined with the ability to realise the initial investment after the initial lock in period but well before the ten-year period conventionally imposed by other private equity funds. The Red Ribbon Fund also benefits from the company’s unique and long standing specialist knowledge of India’s markets, with more than 100 advisers and consultants working daily on the ground in the subcontinent’s hotspots helping to identify the best available investment opportunities.

Red Ribbon CEO, Suchit Punnose said:

Private Equity Investment is virtually unique in the long-term vision that it requires for the business platform. Not only a full understanding of the nuts and bolts of the business, but also a viable plan for optimising asset value and a clear, if still long term exit strategy.

As the article notes, I am sure the radically improved market and regulatory conditions brought in over the last three years by Prime Minister Modi’s Government lie behind the resurgence in exit volumes and values on the Indian Market and I am confident too that with three years consistent growth on this key variable, the subcontinent is set to offer unprecedented opportunities for PE Investment.

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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/

The Changing Paradigm of Mainstream Impact Investment

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Red Ribbon Fund Management has long been committed to Impact Investment Strategies. For more than a decade it has been at the cutting edge of strategies that not only look to deliver above market rate returns for its investors, but also to achieve the best, most positive impacts on our communities, our wider society and on the environment generally. It is important that these strategies are also sustainable, offering long-term solutions within the mainstream economy; because the Fund Managers at Red Ribbon understand short term, one off interventions however positive their transient impact might be, can only ever be of limited significance to the wider community.

Just think for a moment of the difference between a one off famine relief effort in Darfur and a commercially viable project that will build up the same region’s agricultural infrastructure. There is a world of difference, precisely because commercial viability is the single biggest driver of long-term economically sustainable projects.

That’s what Red Ribbon means by Mainstream Impact Investment: investing in worthwhile projects that are commercially self-sustaining: because they deliver commercial returns for investors as well as a positive impact for our wider communities. It’s not just about doing the right thing, it’s about commercial common sense as well.

And after ten years, it’s a message and a mission that is attracting increasing levels of support amongst the wider investment community as well.

Take Morgan Stanley which last month raised in excess of $125 Million in final commitments for its first Global Impact Investment Fund (the Integro Fund). Launched in conjunction with the Morgan Stanley Institute for Sustainable Investing, Integro is now planning to invest exclusively in Private Equity Funds offering above rate market rate returns but which at the same time demonstrate a potential for positive environmental or social impact (or both).

It rings a bell doesn’t it?

In their Press Release issued at the time of the launch, Morgan Stanley explained that they were expecting the Integro Fund to maximise commercial returns for investors, but also to increase access to quality jobs, education and healthcare along with other socially beneficial outcomes; as well as striving to impact the environment in a positive manner and reduce the effects of climate change.The Investment Managers at Morgan Stanley’s Integro Fund also plan to provide detailed, impact-related reporting alongside traditional financial statements for its investors; and that too has long been a central component of Red Ribbon’s investment strategies. Red Ribbon Fund Management favours companies just like these: companies that are able dispassionately to calibrate the negative and positive impacts of their economic activity as well as being transparent with key internal and external stakeholders on just what those impacts are. Red Ribbon believes that more responsible corporate conduct is likely to be driven by such transparent policies and the better levels of social engagement that it engenders.According to The Global Impact Investing Network, 90% of investors in Funds pursuing an Impact Investment Strategy have reported that returns on their investments either met or exceeded expectation, which may help explain why Impact Investment Strategies are gaining so much traction at the moment. In 2013 an estimated $46 Billion was allocated to impact investing; that figure had grown to $77.4 Billion by 2015 and The Monitor Institute predicts it will reach $500 Billion by 2020.

Commercial returns combined with long-term economic growth; and social growth that is capable of making a real difference to our world. It’s the Red Ribbon way and it’s what makes Mainstream Impact Investment so important.

Read about The Global Impact Investment Network

Read about The Monitor Institute

Read about Red Ribbon’s Fund Management Strategies 

Read about Morgan Stanley’s Integro Fund 

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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