Real Estate Intelligence Report, Monday, June 08, 2009

India is now flooded with $1 billion per week

India is now flooded with $1 billion per week
Times of India, June 7, 2009, Page

Swaminathan S Anklesaria Aiyar

After six months of financial drought, global money is flooding into India at the rate of $1 billion a week. If sustained, this will be the mother of all financial stimuli, eclipsing the finance minister's budgetary endeavours.

The dollar flood is not due to the Congress election victory. In April, foreign institution investors (FIIs) poured $1.3 billion into Indian equities. They poured another $1.87 billion in the first half of May - before the election result. For May as a whole, the inflow was $4.14 billion, or a billion a week.

This is part of a global phenomenon. Since April, $20 billion has flooded into all emerging markets. The Sensex is up 50% in 2009. But Russia is also up 63%, China 57%, Brazil 60%, and Argentina 45%. So, the dollar flood is not India-specific: it is part of a global rush into all emerging markets, especially the BRICs (Brazil, Russia, India and China).

Till March, global markets were paralysed by fear. The global meltdown had brought down some of the world's biggest corporates - the top five investment banks, the biggest insurance company (AIG), the biggest bank (Citibank) and the biggest auto company (General Motors). Global investors fled into US gilts carrying almost zero interest, fearing that anything else was unsafe. FIIs pulled $12 billion out of India in 2008, and the biggest Indian corporates couldn't get global funding. Their profits and projects were hard hit.

But the darkest hour is before dawn. After hitting rock bottom in March, global investors finally sensed that governments across the world had, by pouring trillions into rescues, ensured that the crisis would not get worse. The pall of fear lifted. And investors started moving out of US gilts earning virtually no interest into investments with higher returns.

Now, economic conditions in the US, Europe and Japan remain grim. Despite rescues, their financial sectors remain stressed, as rising defaults in credit cards, realty and corporate loans add to the travails from the earlier housing bust. The IMF estimates negative to zero growth in these large economies till late 2010. But emerging markets, especially the four BRICs, are registering positive growth. India's quarterly GDP growth of 5.8% may look very weak compared to its earlier peak of 9%, but is nevertheless fabulous compared with zero or negative rates in the advanced economies. China has decelerated from 12% to 8%, but that remains the highest in the world.

So, with fear lifting, global billions are moving out of safe havens into growth havens. Risk premiums on all financial asset were sky-high in March but have now fallen sharply. So, global billions are moving into junk bonds, corporate debt, commodities, and emerging markets too. Idle money waiting to be invested adds up to at least $2 trillion, maybe much more. If just $100 billion of this goes into emerging markets, that will fuel huge stock market booms.

Sceptics say this is another bubble in the making, unjustified by current profits or any change in India's economic fundamentals. Now, foreign direct investment in factories is certainly better than FII inflows into stock markets. But the flood of $1 billion per week is not just speculative froth, it is actually improving our economic fundamentals.

Earlier, the economy was hit by a negative feedback loop. That is, stress in banks reduced credit to industries, which then suffered falling profits and loan defaults. These in turn worsened the balance sheets of banks, which then lent even less to industry, in a vicious downward spiral.

The new flood of $1 billion a week is changing the negative feedback loop into a positive one. Suddenly real estate companies that were almost insolvent and could not attract either loans or equity have been able to place almost $2 billion with qualified institutional investors.

If shady real estate companies can attract money, anybody can. Suddenly access to finance has become easier and cheaper. Improved finance means improved profits in industries, which means fewer loan defaults. This in turn means better balance sheets for banks, which will be able to lend more to industries, in a virtuous upward cycle.

Thus, a positive feedback loop is replacing the negative one. The bad news is that exporters will be hit by the appreciation of the rupee caused by the dollar flood. The dollar has gone from Rs 52.06 on March 20 to Rs 46.84 on June 4. Still, the positive feedback loop should lift India's GDP growth to 6-7% in 2009-10, up from earlier estimates of 5-6%. That is a substantial gain, though not revolutionary.

Bank credit declines second time this fiscal

Bank credit declines second time this fiscal
The Hindu Business Line, June 6, 2009, Page 1

Our Bureau, Mumbai

The total bank credit fell by Rs 16,306 crore to Rs 27,35,750 crore during the fortnight ended May 22, 2009, according to the latest figures released by the Reserve Bank of India.

This is the second time in this fiscal that net bank credit has declined. Earlier, bank credit had declined by Rs 25,266 crore during the fortnight ended April 24, 2009.

In the earlier fortnight ended May 8, bank credit had increased by Rs 5,882 crore to Rs 27,52,056 crore.

For the latest fortnight, non-food credit fell by Rs 18,571 crore to Rs 26,78,265 crore, while food credit rose by Rs 2,265 crore to Rs 57,483 crore.

The growth in bank credit in the current fiscal so far has been 15.9 per cent, which is lower than the 25.3 per cent growth recorded in the corresponding period last year.

Accordig to bank officials, repayment of short-term loans given to corporates in March and easing of overseas liquidity could be the reasons for the fall in domestic bank credit.

Corporates are believed to be holding back their expansion plans pending the announcement of the Union Budget. There is also an expectation that interest rates could see a further downward revision, as a meeting of the Finance Minister and bank chiefs is scheduled for next week.

SC dismisses Mumbai SEZ plea for staying land acquisition

SC dismisses Mumbai SEZ plea for staying land acquisition
The Hindu Business Line, June 6, 2009, Page 1

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The verdict puts a question mark on the fate of the Mumbai SEZ Ltd as the project runs the risk of being scrapped

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Mr Mukesh Ambani

Our Bureaus, New Delhi\Mumbai

The Supreme Court on Friday dismissed the Mukesh Ambani-promoted Mumbai SEZ plea for staying the land acquisition process for its project in Raigad, Maharashtra.

This verdict puts a question mark on the fate of the Mumbai SEZ Ltd, promoted by Mr Ambani and his associate Mr Anand Jain, as the project runs the risk of being scrapped.

The acquisition process is to lapse on Monday (June 8), as the two-year deadline set by the Land Acquisition Act would be crossed. If the court had stayed the acquisition proceedings, the statutory deadline for acquiring the land for the project would not have prevailed over the court’s final decision.

The bench, headed by Mr Justice B. Sudarshan Reddy, dismissed the appeal of the company against the order of the Bombay High Court. Earlier, the High Court had declined to interfere in the matter and allowed the firm to approach the Supreme Court.

The company had made a plea for speedy processing of the acquisition pointing out that two years after the State Government issued a declaration of “intention to acquire the land” for the company, the district administration has not made the final award.

Analysts are of the view that the Supreme Court decision is a major setback to Mumbai SEZ. A spokesman for the SEZ said he would not like to make any comment at this stage. However, a source familiar with the development said the promoters along with the State Government may work out a strategy. The SEZ has been facing opposition from farmers and anti-SEZ activists.

Last year, the apex court had transferred a number of SEZ cases to itself from various high courts. All the writ petitions, some of which were by land owners and some others in public interest, challenged the validity and procedure of acquisition of land in several states for building these special zones. The Supreme Court is yet to hear those cases.

The Supreme Court on Friday also issued notice on the Mumbai SEZ petition for transfer of its case to the apex court.

The Mumbai SEZ, which envisages an investment of Rs 40,000 crores, is slated to come up in a 10,000 hectares area in Raigad. The project, which has already been given two extensions, was given clearance in 2005. It was in this context that the company wanted to speed up the acquisition procedure so that it would not lapse. However, it has not got relief either from the High Court or the apex court.

The Maharashtra government had conducted public referendum on the project in September 2008. In the referendum conducted in 22 villages nearly 24,000 farmers took part and 91 per cent voted against the SEZ.

RBI wants administered interest rates revisited

RBI wants administered interest rates revisited
The Financial Express, June 6, 2009, Page 1

Sunny Verma, New Delhi

The Reserve Bank of India (RBI) has asked the government to take up a comprehensive review of the administered interest rate regime-including rates on small savings schemes and the savings bank rate-in order to nudge banks into reducing their market interest rates. This would also help lower the cost of the government’s own expanding borrowing programme.

In a meeting with finance minister Pranab Mukherjee on Thursday, which lasted for more than 40 minutes, RBI governor D Subbarao is learnt to have expressed the view that deep rate cuts by banks were difficult without further deregulation of the interest rate structure. This was Subbarao’s first meeting with Mukherjee after the minister took charge.

Mukherjee will meet with heads of pubic sector banks next Wednesday to steer them towards what he has called a “more benign” interest rate regime. The banks have told the finance ministry they can cut their benchmark prime lending rates (BPLRs) by only 25-75 basis points, a senior official told FE.

In the interim Budget, the government pegged its borrowings for 2009-10 at Rs 3.62 lakh crore, which is likely to rise when Mukherjee presents Union Budget 2009-10 on July 3 in Parliament. A 1-percentage point reduction in interest rates would result in estimated savings of Rs 1 lakh crore for the Centre on interest payouts on outstanding government securities, a government official pointed out.

“Small savings rates are administered rates of interest. They should also be adjusted from time to time. But they were not revised upwards when deposit rates rose. One needs to see whether they can be lowered now. They need to be examined afresh,” C Rangarajan, Rajya Sabha MP, former RBI governor and chairman of the Prime Minister’s Economic Advisory Council told FE.

In its annual review of monetary policy 2009-10, RBI said rates on small savings schemes such as the Public Provident Fund, Kisan Vikas Patra and post office monthly, which offer an 8% annual return, acted as a floor for deposits rates. This prevented deep cuts in banks’ lending rates, despite an aggressive reduction in the central bank’s policy rates.

Costly credit and slackening demand weighed down credit growth to a five-year low of 15.9% year on year as of May 22, RBI said in its weekly statistical supplement released on Friday. Deposits were up 22.6% from a year earlier.

“There is no easy answer (on interest rate adjustment) in the present context. The cost of funds to banks is high. If the government can reduce the cost of credit, that will be welcome,” Rajya Sabha MP and former RBI governor Bimal Jalan told FE.

Any move to tinker with small savings rates will have to be carefully calibrated as sustaining the country’s high domestic savings & investment rate is as crucial to economic growth as is easier credit access to India Inc. There is one view in the policy establishment that if the government is going to widen the social safety net in the upcoming Budget, as indicated by President Pratibha Patil on Thursday, there would be some headroom to pare the savings bank rate and small savings rates.

The savings bank rate, currently at 3.5%, has been reduced by only 150 basis points in the last 15 years, by 50 bps each in 1994, 2000 and 2003.

One percentage point is 100 basis points. The reverse repo rate, currently at 3.25%, is now below the savings bank rate. Conventionally, reverse repo has served as a sort of floor on other policy rates, including the savings bank rate.

Two other administered rates--loans to farmers at 7% and export loans at 250 bps below PLR--are, however, unlikely to be reviewed. But the government is considering a 1% rebate to farmers who repay loans on time.

The repo rate (the rate at which RBI lends to banks) has been reduced by 425 basis points since September, while reverse repo (the rate at which banks lend to RBI) has been pared by 275 basis points. But commercial banks have been able to cut their PLRs by only half as much in the same period.

Another key monetary policy tool is the cash reserve ratio, the slice of deposits that banks are mandated to keep with RBI, which is currently at 5%. The bank rate, which reflects the RBI’s view on long-term interest rates and long-term inflation, is at 6% and is unlikely to be touched. SLR, or statutory liquidity ratio (the percentage of deposits that banks need to invest in government securities) is at 24%.

Savings of Indian households were Rs 7,34,653 crore in 2007-08, of which over 55%, or Rs 4,06,630 crore, is held as bank deposits, according to the latest RBI figures. Bank deposits as defined by RBI include cooperative non-credit societies.

The National Small Savings Fund witnessed withdrawals of Rs 5,937 crore in 2008-09, according to the controller-general of accounts data, as investors parked funds in more lucrative avenues like fixed deposits, mutual funds and equities. However, the middle-class’s favourite investment option, PPF, garnered Rs 5,013 crore in 2008-09.

RBI has already initiated a review of the BPLR system when it unveiled the 2009-10 monetary policy in April. It argued that BPLR has lost its relevance as a meaningful reference rate, as over 70% of loans are now advanced below this benchmark. “Furthermore, this impedes the smooth transmission of monetary signals and makes the loan-pricing system non-transparent,” RBI said.

The central bank also proposed that payment of interest on savings bank accounts be calculated on a daily basis from April 1, 2010, as opposed to the present system of calculating it on the minimum balances held in accounts between the 10th and last day of each calendar month. This would roughly raise banks’ interest payout by around Rs 7,100 crore on the banking system’s outstanding savings deposits of Rs 1.01 lakh crore.

Realty check: Concerns overlooked?

Realty check: Concerns overlooked?
The Hindu Business Line, Investment World, June 7, 2009, Page 1

Special home loan rates have helped revive buyer interest in residential property.

Vidya Bala

The realty sector has been the star of the recent stock market recovery. The most battered in the 2008 fall, it is a sector on which domestic brokerages, fund managers and private equity investors were uniformly bearish, even as late as March this year.

Yet, real estate stocks were the first to be singled out in the recent stock market rally. The BSE Realty index was the top gainer among the key indices, with a stunning 209 per cent return from March 9, outperforming the Sensex by 124 percentage points.

Rags to riches

Larger companies HDIL, Unitech and Puravankara Projects, as well as smaller firms such as Ansal Housing, Lok Housing and Prajay Engineers Syndicate all trebled, although the small-caps caught up a little later.

The rally also resulted in some of the real-estate companies being ‘re-rated’ from throwaway valuations to an actual premium over the market. For instance, Orbit Corporation is currently priced at 22 times its trailing per share earnings, compared to just four times in March! Earnings for the company declined over the quarter and the full year ending March-09. Clearly this decline was factored in way ahead, going by the ‘downgrades’ on these stocks early on; the premium, therefore, appears to be for future earnings.

Are earnings of realty companies likely to see a quick recovery? While there are tentative signals of a revival in the sector, some concerns remain unaddressed. Concerns that can well drag the recovery process and, in turn, belie the strong faith currently placed in realty stocks.

Listed below are some reasons why the market ‘upgraded’ the sector and factors that suggest the road to recovery may be longer than anticipated.

Reasons behind the rally

That the BSE Realty index is still 35 per cent below its year ago levels (the Sensex is only 3 per cent below) points to the simplistic conclusion that ‘those that fell most must rise the most’! However, setting aside this unsophisticated theory, there are fundamental changes too — the real estate sector has seen stimulus measures coming its way.

For one, the restructuring package offered by banks for developers has resulted in many realty companies finding a medium-term solution to liquidity issues. Two, ‘special’ home loan rates have paved the way for the return of some buyer interest in residential property. Three, with commodity prices stabilising, realty players have been willingly passing on cost savings and trimming their profit margins by offering significant price discounts to revive volumes.

More recently, funds flowing into Real Estate Investment Trusts (REITs) elsewhere in the world, have revived hopes of fresh infusion of equity through routes such as qualified institutional placement in Indian realty firms. The above events have translated into a less threatening liquidity situation for players and a tentative revival in the residential segment.

Cash yet to flow

While the market may have quickly built these events into future earnings expectations, the above factors do not really alleviate several persisting concerns. Take the case of debt restructuring: Unitech restructured about Rs 2,300 crore of its Rs 8,900-crore debt in FY-09.

Similarly, in March, Omaxe restructured about Rs 450 crore of its over Rs 1,500-crore debt. Now, restructuring typically allows corporates to convert their short-term commitments in to long-term borrowings, thus buying them more time for repayment. This essentially means developers are not really reducing their debt levels; they are merely postponing their obligations.

This is perhaps why Fitch Ratings chose to downgrade Unitech’s debt restructuring early this month. Fitch notes that the revised terms envisaged an extension in maturity profile together with higher interest and/or additional security for Unitech.

Developers continue to have debt-equity ratios of anywhere between 1 and 2.5 times. While such leveraging may not be a cause for alarm in better times, the liquidity crunch has magnified the risks of high debt, as even a single default in the sector can once again result in tightening liquidity. The challenge for these companies would, therefore, be to generate sufficient cash through sales — new launches — that would help project execution and allow servicing of interest commitments on borrowings.

High dependence on new projects to generate cash flow and revive the working capital cycle is also a risky proposition. Launches by big-ticket names such as DLF, Unitech or Puravankara Projects, especially in regions new to them, have been fraught with delays, either on account of pending approvals or lack of funds.


Unlike a year ago, when developers, especially the premium brands, often received time-linked payments (where customers had to pay the instalments periodically, irrespective of the stage of construction), buyers are far more wary of locking in money now. Most of the realty players, including DLF, have moved to construction-linked payments by now.

In other words, while up to 10 per cent of the property value may be received upfront, the rest will come only at different stages of completion. Now this poses the risk of a ‘Catch-22’ situation where developers need money to construct, but funds trickle in only if the project makes progress.

Further, stiff clauses in favour of the customer, such as penalty for delayed completion and allowing units to be traded to prevent mass customer exits, are only likely to add to balance-sheet pressure for developers, unless the execution schedule is near perfect.

Volumes at a price

Another strategy that has offered hope for revival of volumes and improved cash-flows is the increased focus on middle-income housing. Companies such as DLF, Unitech and Puravankara were the early birds to opt for this strategy. After initial reluctance, players decided to lower prices/offer discounts as this segment continued to be price-sensitive.

Companies such as HDIL and DLF have clearly seen an improvement in volumes because of such forays in the latest quarter compared to December. (Any revival, though, pertains only to residential space and not the commercial/retail segments, where projects have been put on hold).

Orbit Corporation and HDIL have, in fact, seen a growth in sales on a sequential basis. However, profits have more than halved over this period. Clearly, volumes have come at the cost of profitability.

Going forward, even as more companies may show improvement in sales aided by discounts, the super-normal profits of the past couple of years are unlikely to return. Operating profit margins could be whittled down to realistic 15-20 per cent levels from the current 40-50 per cent. This is bound to have implications for valuations of realty stocks, which commanded a premium for high profitability earlier.

Everyone’s not equal

One significant feature of the rally in realty stocks is that the market appears to take cues from positive developments for larger players such as DLF and Unitech, and extend it to the entire sector. Here, again, smaller and mid-sized players do not possess the business diversity or ability to raise cash quickly through sale of other assets, to demonstrate a quick turnaround.

An Ansal Housing or a D. S. Kulkarni Developers may not be able to sell a hotel asset or a wind-farm business or divest stake in a telecom subsidiary, as was the case with DLF or Unitech, to quickly raise cash. For smaller companies such as Omaxe or Prajay Engineers, given their exposure to certain States/regions, a local or regional revival in demand may be paramount to a turnaround.

Without quick monetisation of assets, smaller companies would be largely dependent on bank funding; this source of finance, though more relaxed now, remained expensive (until the March quarter), with interest rates hovering at 13-15 per cent. Debt servicing will, therefore, remain key for smaller companies to stay afloat. Cash flows from launches would largely serve this purpose.

The above concerns have been highlighted not to cast doubts on whether a realty sector revival is possible but to underline the fact that the recovery in earnings may not be as easily or quickly managed as the market seems to expect.

With liquidity concerns alleviating, investors’ focus should now probably shift to improvement in volumes and those, in turn, translating into revenues (if project execution happens on schedule).

Companies that record growth in revenues over the next three quarters, even with marginal improvement in earnings, may be the ones on a revival path. Here again, it may be challenging for most companies to keep their profit margins intact; the ones whose profit margins are less hurt may be the superior ones with higher pricing power and operating efficiencies.

Until then, it would be prudent to lock into some of the profits made on stocks that now enjoy double digit P/Es (see Table). On this account, the market has still kept the P/Es of smaller players at modest levels, perceiving higher risks. Any run-up in their valuations may have to be viewed with caution.

Poll outcome has changed India’s investment landscape

Poll outcome has changed India’s investment landscape
The Economic Times, June 8, 2009, P14

Indian corporates are now in a relatively strong position to buy overseas assets, Goldman Sachs India chief tells George Smith Alexander & Bodhisatva Ganguli

AFTER parting ways with Kotak Mahindra in 2006, Goldman Sachs went solo in India. Over the past threeand-a-half years, the investment banking and securities firm has invested over $2 billion of its proprietary and client funds in India. Brooks Entwistle, CEO-Indian operations, Goldman Sachs, tells Bodhisatva Ganguli & George Smith Alexanderhow market dynamics have changed since the poll outcome of May 16.

How would you term the Indian market’s reaction to the poll outcome?

The election outcome is analogous to Obama’s win: You have all the excitement and euphoria, followed by a lot of hard work. We are still in the euphoric stage, but this will shift into hard work soon, which is when the government gets the opportunity to live up to what have become very sizeable expectations.

Investment interest in India has changed dramatically over the course of the past three weeks since the poll outcome. In many cases, investors waited on the sidelines, and, after there was a clear mandate, they jumped in.

The view doing the rounds is that the upside in markets in the West is nothing more than a bear rally while that in Asia is a bull run.

One of the constant themes we hear about from a market’s standpoint is that India and China would lead the way out of the global downturn. It is happening. It’s been dramatic since March. If you think about India, the market peaked in January 2008 and so the trouble showed up on India’s shores a bit later than it did in most markets. Remember the fall of 2007, when you couldn’t have a conversation of subprime in this market. Yet, that was a big topic in the rest of the world, especially in the US. The Indian market fell later, but has snapped back faster. It didn’t last as long as it might have, at least so far.

How much have you succeeded in what you set out to do when you took charge in 2006?

One of the things we set out to do was having a full service Goldman Sachs presence in India. We have done just that. We have built an investment banking team and franchise here that has been involved in the largest sell-side M&A deal ever (Hutch to Vodafone), the largest equity deal ever (ICICI Bank ADR), the largest bond deal ever, and, arguably, the most-complicated and complex M&A deal (Satyam). We certainly have been very active investors in the country. We invested over $2 billion through our various funds and from our own balance sheet, making us one of the biggest investors in the country since 2006. Earlier this year, we decided to delay the launch of our domestic AMC business.

We have the licence and will launch when the opportunity is right. On the fixed income side, we also bought an NBFC.

In the last round of disinvestment, investment bankers slashed their fees to rock-bottom levels. How will you compete in such a market?

There are pieces of business from a business selection decision that you have to pursue and try to be in from a market share standpoint. You have to consider both fees and market share. You have to be selective and you can’t do everything. And the ones (businesses) we are going after, we will play as hard as anyone for them.

What sort of mandates are you getting from corporates? Is it sell-side mandate or for raising capital like QIPs?

We are actively in discussion with clients who have liquidity issues and where there may be an opportunity to sell assets. It’s still a common theme here from an M&A standpoint. The market coming back, as it has, and opening up capital sources, may help some of these situations. We are very focused on working with clients to take advantage of these current market conditions. Also, Indian corporates, which have come through reasonably unscathed, are in a relatively strong position to buy assets elsewhere in the world. We are constantly canvassing the global landscape for opportunities that might be attractive for Indian clients.

Was the pain in the market too short?

The period from January 2008 to now may have been too short to have some people really go through tough strategic decisions. If you talk to people in private equity, up until four weeks ago, valuations were slowly creeping back to a point from where things were getting very interesting again. Then suddenly, it changed again. It’s an interesting dilemma. These markets have been good for promoters who may have been in trouble or in sectors that have come back in favour quickly.

Would deal flows be affected because of the run-up in the market?

With valuations having risen as dramatically as they have, there is no question from a private equity perspective that it’s a more challenging environment to find attractive deals. That said, both our private equity side and many of our financial sponsors clients have made commitments to India to be here and continue to remain here. But things have changed. It’s not going to be easy.

In real estate, was the pain too little?

Companies were just getting squeezed. This period was short enough that very few people actually hit the wall. Anybody in real estate, who had access to the capital market during the past couple of weeks, found a welcome change and a relief. It’s a bit more difficult for companies that are not public yet.

Has Goldman Sachs cut down the number of expats working in India?

In every market that we enter, we bring in a lot of existing Goldman Sachs experience from elsewhere while we build the local bench. India has been no exception and I’m very pleased with the pace at which we have migrated to local leaders. To serve our clients, we remain committed to be the most connected and integrated global investment bank in India.

Going forward, where could we see more investments — infrastructure or corporate?

We still have a very strong private equity focus and will continue to look hard at opportunities in infrastructure. This is one of the places we would want to invest in. But sometimes, it’s not that easy to do so. We will continue to be significant investors across corporate India. Goldman Sachs remains as enthusiastic about, and committed to, India as ever. We will continue to look at real estate, but we will be most active on the corporate front.

Stronger India after slowdown: Survey

Stronger India after slowdown: Survey
The Economic Times, June 8, 2009, Page 7

Pramugdha Mamgain NEW DELHI

INDIA Inc feels that the country will be back on growth track in the next 18 months and that the third world countries will become more powerful as a fallout of the global economic slowdown, as per a survey of research firm IMRB International.

The survey commissioned by All India Management Association (AIMA) showed close to two-third of the managers, who took part in the survey, were bullish about India’s economic growth and believed that India Inc will bounce back with renewed profits.

As per the survey conducted among 450 middle-level managers across sectors such as pharmaceuticals, automobile, energy and power, telecom and IT, the respondents blamed the sub-prime crisis in the US and weak corporate governance as the main causes of slowdown.

Low sentiments has brought down consumer expenditure due to the sense of job insecurity despite the fact that there has not been a steep decline in the income levels. Consumer spending has declined mainly in lifestyle. While spend on children and food products have gone up, there has been no significant change in spend on automobile and household durables, the survey said.

“With the stable government in power again, reforms will be unstoppable. Special focus should be laid on employment generating projects and increasing money flow in the economy besides reducing taxes to bring back both consumers’ and investors’ confidence,” said AIMA’s research committee chairman BS Sahay.

The level of optimism was higher among managers in pharmaceutical, telecom, IT/ITeS and textile sectors while it was low in automobile and financial services sector.

Almost half of the respondents felt that liquidity crunch is the major problem facing corporate India. Despite higher optimism for Indian economy, around 35% of those surveyed believe that economic recovery in India and the rest of the world will not be too spaced out.

This reflects the fact that Indian economy is not isolated from the global market. Besides the US, BRIC countries, especially India and China, will be the primary growth drivers in the global recovery, as per the survey.

Among the respondents, managers working with public sector companies were more optimistic about the economy than their peers in the private sector, the survey revealed. While most Indian private companies are trying to minimise risks by pulling back investments and cutting costs, public sector firms are taking steps to bring down operational expenses.

Akruti City to raise $500 m through QIP

Akruti City to raise $500 m through QIP
The Economic Times, June6, 2009, Page 5

Our Bureau MUMBAI

MUMBAI-BASED real estate company Akruti City plans to raise up to $500 million through the qualified institutional placement (QIP) route. It is gathered that the funds raised through the proposed QIP would be used for Akruti’s projects in Mumbai that are currently under construction.

The company, like many other real estate companies, was facing a liquidity crunch for a while now and had gone slow on many of its projects. Akruti is yet to announce its results for the year ended March 31, 2009, and the debt on its balance sheet at the end of March 2008 stood at Rs 625 crore. When queried on the debt position, Akruti City managing director Vimal Shah said it was minimal.

The QIP proceeds are expected to be utilised for the Slum Rehabilitation Authority (SRA) project in Andheri in western Mumbai among others. Akruti also has a joint venture with DLF for a couple of projects in Mumbai. As reported earlier by ET, DLF has been looking at selling some of its assets, one of which is a JV with Akruti. Akruti joins the list of real estate companies that have taken the QIP route in the last few months. After Unitech and Indiabulls Real Estate raised close to $900 million, HDIL and Orbit too have announced plans to raise money through QIPs.

Real estate developers homing in on residential projects

Real estate developers homing in on residential projects
Business Standard, June 6, 2009, Page 4

Neeraj Thakur / New Delhi

While the sudden rise in demand for affordable residential housing in the last couple of months has given the much-needed relief to real estate developers, commercial and retail segments continue to face the heat of oversupply, combined with declining rental rates and lower demand from investors.

As a result, developers have deferred a majority of the ongoing commercial and retail projects, which were scheduled for completion in 2009-10, and are instead focusing on the residential market. In fact, according to real estate consultants Cushman & Wakefield, developers will be forced to defer 41 per cent of the projected office space supply in 2009.

“Out of 76 million sq ft of commercial (office) space projected across eight cities by many developers, only 45 million sq ft is expected to be completed in 2009. In the retail segment, out of the 14.5 million sq ft of projected space, only 3.6 million sq ft is expected to enter the market,” Cushman & Wakefield’s Executive Director Kaustav Roy said.

The supply overhang in commercial and retail segments is expected to continue for another 12-18 months, feel experts. At the same time, a sharp decline in the price of residential units — in terms of per sq ft rate as well as size — has resulted in a sharp increase in demand. As per conservative estimates, 60 million sq ft of residential space has been lined up for launch in 2009.

One of the key reasons for this poor demand in commercial and retail segments is the non–availability of Real Estate Investment Trusts (REITs), which could not take off because of complex legal hurdles and the sudden crash in the stock market in 2008.

While many of the real estate companies — such as DLF Asset Ltd, Unitech, Indiabulls Real Estate and Purvankara, among others — were planning to raise resources through REITs’ listing, only Indiabulls successfully raised $286 million by listing its REITs on the Singapore Stock Exchange. The failure of REITs to take off has affected the financial position of developers and, in turn, further delayed the completion of ongoing retail and commercial projects.

“In the past one year, everything has been against the commercial real estate. Private equity vanished from the markets, while the government increased risk rating on the real estate sector. The failure of REITs to pick up added to the financial crunch of the developers,” commercial real estate services company CB Richard Ellis’ Chairman and Managing Director Anshuman Magazine said.

“Developers are not in a position to complete their commercial projects due to a lack of funds, a demand-supply mismatch and falling rentals,” he added.

The country’s largest developer, DLF, has already received an approval to denotify four of its SEZs. In addition, it has also temporarily stopped construction work on nearly 16 million sq ft of office and retail mall space out of the 62 million sq ft of planned construction.