Chanakya Issue X Volume I

8/14/2019 Chanakya Issue X Volume I

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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


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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.


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

Documents

Chanakya Issue X Volume I