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8/14/2019 Chanakya Issue X Volume I
1/4
Story Title
1
Story Title
1
Story Title
2
Story Title
2
OnlyRs.7825croresinvestmenthascomeintoports
sectortilldatefrom1996,thefirsttimetheIndianport
sectorwasprivatized.Butanunprecedented
investmentrushbycorporate,Indianandforeign,isset
tobringRs60,000croreinthenext5years.What
makes
Indian
ports
an
attractive
business?
Indiasportsarerapidlybecomingtheworldsbusiness.
AsAsiaincreasinglygainsgroundastheworldstrading
powerhouse,India,growingataratefasterthanall,
butone isbeginningtogetraptattention.
Just10containerportsinAsia,includingSingapore,
MalaysiaandDubai,nowhandleover40%ofworld
traffic.Ofthetotalvolumeofcontainerizedcargo
movementglobally,over50%isfromAsia.FiveAsian
portshandle23%ofglobalcontainertraffic.Statistics
showthat26%ofglobalcontainerizedtradeisintra
Asia.Asopposedtothegrowthof3.54%inglobal
trade,Indiahasbeenregisteringa10.4%growthin
containerizedcargoanda6%growthinbulkcargo.
Indias73.48milliontonsofcontainercargoin200607
stillaccountsforjust1%oftheworldcargoand56%in
Asia.Inthepastfiveyearsmanufacturingexportsfrom
Indiahaveincreasedatacompoundedannualgrowth
rateof14%.Oresandmineralsexportshaveincreased
4.5timesinlast5years.
Indianportsarenotdesignedtohandlethis.As
theyaregettingchoked,awaveoffresh
investmentshasraisedaflickerofhope.Corporate
bothIndianandforeignhaveshownan
unprecedentedinterestinportinvestmentsinthe
lastfiveyears.Asisthenatureofthebusiness,the
investmentsarehuge.
Investmentof$22billionwithinthenextfiveyears
isbeingprojectedbythegovernmenttobuild,
expandand
modernise
sea
ports
with
locally
generatedresources.AresearchbytheSingapore
basedNeptuneOrientLinesandLondon
headquarteredDrewryShippingConsultants
indicatedthatIndiahasthepotentialtodoubleits
containercapacityatportsfrom73.48million
tonnein2007to152milliontonnein2012.And
whilethefirstprivatizedprojectsarenow
commissioned,investmentqueriesarepouringin.
Therewere1113biddersfortheMumbaiberth,
11forChennaiand13bidsreceivedfortheKandla
port.TheChinesecompaniessuchasHutchison
andEvergreen
whose
bids
were
not
being
processedforsecurityreasons,havenowbeen
clearedtobidforportsprivatization.
Justmodernizingthe12majorand184private
portswillcostanestimatedRs.50,00060,000
crore.Buttheinvestmenteuphoriaisso
overpoweringthateventhoughthegovernment
hasaprovisionofgapfundinginportswherefunds
areaconstraint,onlytheKeralagovernmenthasso
farsoughtgapfundingfortheVizanghamport.A
clearindicationthatlargefundsandresourcesare
nowchasing
few
projects.
RemarkableReturns
Highdemandforcargohandlingfacilitiesisnotthe
onlyreasonwhythereisabeelineforport
investments.Thekeyreasonistheremarkable
returnoninvestments,higherthanalotofother
corporateactivities.AccordingtoSBICaps,return
Docking Up Ports
This Issue
Docking Up Ports -
1
Opportunities
Galore in
Infrastructure
2
Real Estate
Investment Trust in
India -
3
Economic Ounce
Team India -
4
Marg Ltd Chanak a
January 2008 Volume 1, Issue X
8/14/2019 Chanakya Issue X Volume I
2/4
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8/14/2019 Chanakya Issue X Volume I
3/4
Real Estate Investment
Trust in India
Frombigcorporatebuilderstotheneighborhood
builder,realestateusuallyspellsRICH.Sohowcan
smallandmediumsizedinvestorsthriveinthis`high
return'industrywithoutgettingtheirhandsdirtyin
cementandmortar?Theanswerperhapsliesinfour
words,RealEstateInvestmentTrusts(REITs)forwhich
SEBIrecentlyclearedthedeck.
AREITisasecurity,muchlikestocks.Theyusuallysell
onthemajorexchangesandinvestinrealestate
directly,eitherthroughpropertiesormortgages.In
manycountries,REITsreceivespecialtaxbenefits.
Theyaddtothehighyieldsaswellasliquidityanda
goodcandidateforattractiveinvestmentproposition.
TherearedifferentkindsofREITs.
EquityREITs
own
properties
and
their
revenues
come
principallyfromrents.
MortgageREITslendmortgagemoneytorealestate
ownersorbuyexistingmortgagesandmortgage
backedsecurities.Theirrevenueismainlytheinterest
earnedearnonthemortgageloans.
HybridREITsinvestinbothpropertiesandmortgages.
Thesearesaidtobelowerinriskasthemixed
portfoliocushionsmarketupsanddowns.
SowhatmakesREITsinvestmentdifferentfromother
paper
based
investments?
Theadvantagesaremany.First,transactionsare
transparentandreturnsaredisbursedregularlytothe
investor.Second,highersafetycomparedtomutual
funds,equityandotherunsecuredinvestments.Third,
pricesarenotvolatile.REITcanfallinvalueonly
marginallybecausetheintrinsicworthoftheproperty
isunlikelytoevergodown.Marketforcesaloneand
notweakfundamentalscanimpactvalue.Direct
investmentinpropertyisvulnerabletobuilder
defaultseitherdeliberateorduetoinadequate
finance.
Worldover,nexttopureequity,REITsyieldthemost
returns(morethangold).Sometimesthereturnshave
exceededequity;forexample,in2000whenStandard
andPoor's500stockindexlost9.1percent,REITs
gained21.89percent.
InIndiatherealestatemarketisreportedlygrowing
30percentannually.DSPMerrillLynchreport
suggeststhatrealestatecouldgrowfrom$12billion
to$4550billioninfiveyears.
TheRealestatesectorgrappleswithhightransaction
costs,lackoftransparencyandfragmented
developers.Buttherecenteventssignalthatthe
sectorcouldbepoisedforrapidgrowthmainlydueto
theunstinteddemandfromtheeconomically
empoweredconsumers.
Accordingtothesamereport,realestatereturnsin
Indiaareestimatedat1214percentannuallywithan
upsurgeincommercialrealestateowingtotheBPO
boom.Leaserentalsarepickingupsteadilyandthere
isdemandforqualityinfrastructure.Further,a
significantriseindemandislikelyastheoutsourcing
boommovesintothemanufacturingsector.The
housingsectorhasbeengrowingatabout34percent
annually,whilethehospitalityindustrywitnessed10
15percentgrowthlastyear.Thesceneisjustrightfor
REITsto
deliver
attractive
returns.
However,
regulatoryhurdleshavepreventedmarketplayers
fromintroducingREITsinIndia.Withthedecksnow
clearedbytheSEBIthiswillguidethemarkettosome
methodsandwillhelpgrowthemarketfurther.
SomeSalientFeaturesofthePolicyare:
TheREITswillhelpmeetthecapitalneedsofthereal
estatesectorandalsoallowinvestorstoparticipatein
therealestategrowthopportunity.Thetrustand
managementcompanymusthaveanetworthofnot
lessthanRs5crore.Thetrusteescanbeabank,trust
companyof
scheduled
bank,
public
financial
institution,insurancecompanyorabodycorporate.
AlltheschemesofferedbytheREITswillbeclose
ended,whichwillbecompulsorilylisted.TheNet
AssetValue(NAV)oftheseschemeswillbedisclosed
preferablyonayearlybasiswhichwillbebasedonthe
valuationreportpreparedbytheprincipalvaluer.
Thecontractvalueofrealestatemustnotexceed20%
oftheNAVincaseofuncompletedunitsinbuildingor
unitswhicharebeingdevelopedsubstantially.
However,theregulatorhasproposednottoallow
investmentsin
vacant
land.
A
trust
under
all
its
schemesshallnothaveexposureofmorethan15%of
anysinglerealestateproject.
Similarly,anytrust,underallitsschemes,shallnot
haveexposuretomorethan25%ofalltherealestate
projectsdeveloped,marketed,ownedorfinancedbya
groupofcompanies.
WiththeentryofREITsthegamewouldbegetting
biggerwithmoreplayersinthemarket.
8/14/2019 Chanakya Issue X Volume I
4/4
Indicators Dec07 Nov07
BankCredit 23.5% 22.47%
Deposits 26.7% 26.8%
MoneySupply
23.8% 21.8%
Inflation 3.07% 3.11%
HomeLoanRate 11.5% 11.5%
IIP 9.83% 9.3%
ForexRate 39.30 39.80
ForexReserves
(US$Billions)
272.95 279.80
Thegrowth
in
the
industrial
production
has
been
droppingconsiderablyduetovariousreasons.One
majorreasoncanbesitedastheunabated
strengtheningoftheIndianrupeeagainsttheUS
dollar.Notwithstandingthis,theIndianeconomyis
forecastedtoexpandby9.83%thisfiscalmainlydue
totheincreaseintheservicessector.
Themoneysupplyinthesystemisincreasingandthe
RBIisreallyconcernedwiththemanagementofthe
trinity.Inflationisnotacauseofconcernatthispoint
butstilltheincreaseinmoneysupplyanddecreasein
thevalueofUSdollarandincreasedbankcreditanda
stabledepositgrowthareallmakingRBInervousand
mayforceittofurtherincreasetheCRRbyanother50
basispoints.
Inthatcasethebankswillbeleftwithnooptionto
increasethePLR.Theincreaseinthehouseloan
interestcanalsobeexpectedwiththeincreaseinPLR
andanattemptbysomemajorbanksliketheSBIor
theICICI.Thismaycausetheoverallincreaseinthe
houseloanrateswhichwillfurtherreducethe
demandfortherealestateproductsandgeneral
decelerationinthehousingofftake.
Anyrespite,ifthereareany,maybeexpectedafter
thebudgetsasthegeneraltaxcollectionofthe
Governmenthasalreadyexceededthebudgetary
targetby12%onallformsoftax,directandindirect
taxes.Thismayenablethelongawaitedreductionin
thetaxratestherebyenablingmoremoneyfloatin
themarket.
Thisstepbythegovernmentmaystillincreasethe
inflationbutbythattimetheRealEstateMarket
wouldhavelostenoughofitsflesh.
Economic Ounce
Mr.TPAnand
HeadStrategicPlanning
Extn:316
Mr.DJoelKPandian
DGM StrategicPlanning
Extn:306
Mr.AnupChaudhry
Asst.ManagerStrategicPlanning
Extn:307
Team Chanakya
MargLtd
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