Tag

Private Equity Archives - Red Ribbon Asset Management

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

Saving for the Future: India’s Dynamic Asymmetry

By | INDIA, News | No Comments

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.

Private Equity and Indian Real Estate: The Bigger Picture

By | INDIA, News | One Comment

Private Equity and Indian Real Estate: The Bigger Picture

Stag Investors buy into the “grey market” before a Listing takes place, selling out immediately after the stock is traded in the hope the pre-market has understated the share price. The Stag Investor is the Mayfly of the Financial Markets; here and gone in a moment, paying little if any attention to the actual performance of the company in which he was so briefly a shareholder. Private Equity (PE) sits at the other end of the spectrum: investing for the long run, often taking a controlling position on the board and shaping the company’s future in the hope of long-term gains. If the Stag Investor is our Mayfly, Private Equity is more of a Galapagos Tortoise.

So it is interesting that Private Equity Investment has now emerged as one of the cornerstones of the resurgent Real Estate Sector in India. At the very least it speaks well for the Sector’s long-term prospects.

More or less stagnant up to 2014, the PE contribution to Real Estate on the subcontinent has rocketed in recent years (according to Knight Frank’s latest sector report) and is likely to end the year on a record-breaking high of $4 Billion.

Blackstone, a leading Private Equity House, is now one of the largest landlords of office space in India with its recent deals (struck with L&T Seawood and K. Raheja) racking up more than USD 200 Million each; and in overall terms the cumulative PE investment for the first nine months of this year already exceeds the last five years taken together. As Knight Frank note in their report, somewhat archly, “institutional investors have already smelled the coffee”.

Between 2011 and 2014 the average aggregate PE investment in Indian Real Estate was $ 2.1 Billion; that figure rose to $3.3 Billion between 2011 and 2014 (an increase of more than 57%) and the bulk of it was destined for pre-leased office space and industrial properties, which is suggestive (“strongly suggestive” Knight Frank believe) of a trend for new investors to shy away from the risks traditionally associated with execution, regulatory approval and marketing on more conventional “off plan” projects in the residential sector; all of  which suggests that the business and residential segments of the sector are running on different tracks.

But not so fast. That might also give us a clue for one of the key drivers behind the general resurgence of PE interest in Indian Real Estate since 2014, as well as a pointer for the way ahead.

2014 was, of course, the year that Prime Minister Modi’s Government instituted its radical reform programme for the economy; a programme that came to include the Real Estate (Regulation and Development) Act of 2016 (RERA) and a new regime for REIT listings on the Bombay Stock Exchange, culminating in this year’s Goods and Services Tax all of which have combined to turbocharge real estate investment in this, the fastest growing large economy on the planet. So it seems unlikely that the residential sector will continue to lag behind in the manner it has over the past three years. All suggestions are that the two segments of the sector will start to converge.

The Red Ribbon Real Estate Fund aims to deliver income and capital growth in the medium to long term by investing in real estate projects, and Indian real estate in particular; and unlike almost every other real estate fund it is open-ended, enabling investors to exit on notice after the initial three-year lock-in period rather than have their capital tied down for the long term on a conventional private equity model. The Red Ribbon RE Fund offers a unique blend of long-term growth potential with medium-term liquidity.

Read about Knight Frank Report here: www.knightfrank.co.uk/research

Read about the Red Ribbon Real Estate Fund here: https://redribbon.co/investment-products/funds/real-estate-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.

Newsletter

Sign up for our informative newsletter.