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Saving for the Future - India GDP Savings Ratio - Red Ribbon Asset Management

Saving for the Future: India’s Dynamic Asymmetry

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Saving for the Future: India’s Dynamic Asymmetry

India: in the space of a single generation the subcontinent has increased its savings to GDP ratio from 13.9% to a simply astonishing 30%

The domestic savings account played a key part in Japan’s economic miracle: with an increasingly wealthy and traditionally conservative population storing up personal wealth at unprecedented levels, the country achieved one of the highest savings to GDP ratios anywhere in the world by the mid 1980s and Japanese business wasn’t slow to draw on it to fuel its increasingly ambitious investment programmes. The rest, of course, was history. And Japan still has one of the highest Savings to GDP ratios in the world at 24.4%, but it’s no longer the highest ratio. That prize now goes to India: in the space of a single generation the subcontinent has increased its savings to GDP ratio from 13.9% to a simply astonishing 30%. Compare that to the United States, which is languishing at 16.9% and the United Kingdom at 14.8% (less than half of India’s current figure).

India Savings-GDP ratio - Red Ribbon Asset Management

India Savings-GDP ratio – Red Ribbon Asset Management

And as we know from Japan’s savings fuelled economic miracle of the 1980’s, these things really do matter: in a resurgent economy such as India, companies simply cannot do without a resilient and liquid stock of capital to fuel forward investment, and history has taught us time and time again (most recently, again, in Japan) that the best source of liquid capital is the liquid cash, in a form capable of being made available commercially through public equity and capital markets. Conversely, history has certainly taught is that a wholly credit fuelled investment surge is not to be trusted, even in the medium (which is no doubt why the United States and the UK are running at such historically low savings to GDP ratios at the moment).

Now that India has taken the lead in this crucial metric, it is interesting to note too the gradual process of increased capitalisation which is inexorably turning its huge pool of cash into investment capital for future growth. For example, there are at the moment more than 7,800 separate stocks listed on India’s exchanges, but less than 3,000 of these are actively traded; and by parity of reasoning, bond trading (a key indicator of the vibrancy of any capital market) accounts at the moment for less than 75% of overall market activity in India. This all points to an obvious and marked under participation by the subcontinent’s population of over a billion (and rising), with only 18 million of these actively investing in equities and ten of the major urban conurbations by themselves accounting for more than 80% of trading volumes. Economists would call this a dynamic asymmetry: an unstable basis for positive future growth.

Because current levels of participation are not a problem for India but rather, a mark of just how much can still be achieved in a non-saturated market, with a huge supply of liquid capital and a Government committed to driving forward investment programmes on a scale which would have been beyond our wildest dreams even twenty years ago. In a saturated market with little or no short-term liquidity it would be a very different matter, but that’s a problem more likely to be found these days in uptown Manhattan than downtown Mumbai.

Which is why domestic saving volumes are likely to play a key part in India’s explosive growth over the coming years, underpinning the key strengths of Red Ribbon’s Private Equity Fund which aims to achieve both dividend yield and capital growth by investing in Indian Businesses which benefit from improved capital liquidity trends in this, the fastest growing Growth Market in the world.

Why Real Estate is Trumps for the Indian Economy - Red Ribbon Asset Management

Why Real Estate is Trumps for the Indian Economy

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When Donald Trump launched the Trump Tower Pune Project in 2014, he told the assembled press pack (using what we have since come to recognize as his gift for few words), that the Project would be “good for India”. Well, few words or not, it was good for Pune, and the 45th President of the United States (a man who knows a thing or two about real estate) might equally well have been summing up the future of the Indian economy as well: because, as it happens, Real Estate is good for the India too.

And as we move into 2018, all the evidence suggests the subcontinent’s Real Estate Sector is still set fair for the foreseeable future, so that’s good news for the Subcontinent’s Economy well.

Real Estate has now become the second largest employer in India (after agriculture) and it is expected to assume even greater sectoral importance over the coming decade (forecasts produced by the IBEF suggest a dizzy 30%). And no doubt President Trump would be heartened to learn too that in the Global House Price Index India jumped last year by thirteen places to sit at 55th Globally: a consequence of ferocious price competition in the mainstream residential sector on the subcontinent.

And in hard cash terms, the real estate sector is currently expected to generate a staggering  $180 Billion in gross revenues by 2020, which is little short of breathtaking given it already accounts for 6% of India’s GDP.

Private Equity Investment in Indian Real Estate (a key bellwether of economic resilience) grew by 26% last year to a nine year high and direct investment has risen to $7 Billion. Notable participants including South Korea’s Mirae Asset Group, which is planning to expand its Indian operations by investing in excess of $500 Million in commercial leased properties; Canada Pension Plan Investment Board (the Canadian Pension Asset Manager), which has agreed to take a 49% stake in Island Star Mall Developments; and Qatar Holdings LLC (a subsidiary of the Qatar Investment Authority) which has committed to invest $250 Million in the affordable housing fund of Arthveda Fund Management.

Perhaps the most striking feature of that glittering investment roster is that the bulk of the companies involved are not Indian by domicile, which also reflects well on the success of the Modi Government’s FDI Programmes.

And whilst we’re talking of Government, it is pleasing to note too that the significant initiatives announced last year, each designed to stimulate investment in real estate seem now to be bearing real fruit at a local level. Take for example the new public private partnership (PPP) where no less than eight new options have been unveiled by the Ministry of Housing and Urban Affairs to stimulate provision of more and better units in the affordable housing segment; and also in Delhi where the Government has just declared 89 out of 95 villages to be Designated Urban Areas (pursuant to new provisions in this year’s Union Budget) all of which will ease the previously complicated process of land pooling and provide a further boost to the provision of housing in this increasingly overpopulated area.


Red Ribbon CEO, Suchit Punnose said:

Real Estate was the second largest employer in India last year (after agriculture) and over the coming decade it is expected to contribute no less than 30% of Indian GDP. The Sector is proving to be a growing powerhouse for economic growth on the subcontinent, currently forecast to generate $180 Billion in gross revenues by 2020.

Red Ribbon has always placed Indian Real Estate at the heart of its portfolio management strategies and these latest figures fully vindicate that decision. Through diverse projects such as Modulex and Eco Hotels, I am confident that we will continue to harvest the rewards of this exciting sector for many years to come.

All in all, things are looking good for 2018…

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.