Realty needs to link policy, research and practice for an integrated approach to sustainable development

Realty needs to link policy, research and practice for an integrated approach to sustainable development
The Financial Express, May 25, 2009, Page 5

sachin sandhir

Floods, droughts, climate change and global warming are disturbing facts in today’s world. The causes? Rapidly increasing urbanisation, carbon emissions and other greenhouse gases. Let's face the reality. The earth’s capacity to sustain its human population and current lifestyle is finite. Climate change is a reality and the property sector needs to prepare for the changes it will bring. And the only way forward is to pursue sustainable development. Most aptly defined by Brundlandt Report in 1987, sustainable Development is “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”.

Real estate development uses about 40% of the energy and is probably the largest contributor to global pollution emissions and global warming, bringing the sector in the forefront of the shift towards sustainability. The magnitude is big. It’s estimated that 76% of the electricity generated by all power plants is consumed by buildings. Nearly 35% of the energy consumed in a building is because of the use of light in the day time.

Certainly this is something we can change if we think collectively about the big picture. The result? It will result in approximately 30-40% of potential savings in the energy consumed. According to Teri, the projected annual increase in energy demand, with no improvements in energy-efficiency, would be 5.4 billion kWh. The application of energy-efficient building design concepts, techniques and technologies in new construction can save about 2 billion kWh annually, representing an annual saving of Rs 30 billion at current prices.

There is a sense in which all new buildings may be expected to address sustainability, although there may be little accord on what constitutes a sustainable building and how it is to be measured. Quantifying this phenomenon popularly known as the green building is relatively new to India. And that is where standard measurement tools such as LEED and GRIHA prove valuable and serve as a starting point.

CII along with IGBC (Indian Green Buildings Council) pioneered the sustainability movement in 2001 and they have successfully customised and established LEED energy rating standards for construction projects. Last year, they expanded this initiative by launching the rating system for green homes. A home grown rating system known as Green Rating for Integrated Habitat Assessment (GRIHA) by Teri is also gaining popularity after being endorsed by the Ministry of New and Renewable Energy in late 2007.

While there are a handful of certified green buildings in India, each one is proof of the benefits it brings. Take, for example, the new IT Park by Tata Housing (certified as LEED Gold) that boasts of 26.6% savings on air-conditioning power and cooling costs and 34.1% saving on water supply.

So, why are so few sustainable buildings being designed, built or retrofitted? Why is sustainable property investment and management not getting mainstreamed? What are the drivers of this process and what are the barriers? Does sustainable property investment really pay off or are property investors simply doing it to show their green credentials? Are consumers sufficiently informed about the respective merits of the options open to them, and do they actually value sustainability as an attribute when making property related decisions? These are the questions we should be asking ourselves.

The knowledge and the technologies needed to produce sustainable buildings are available. The economic benefits of sustainable design and construction are now somewhat documented. However, what is standing in the way is the misalignment of incentives between the providers of buildings and those who are going to invest in or occupy buildings. This has become a vicious circle of blame.

It is a circle where investors claim they would fund more sustainable development if the market asked for them; end users would like sustainable buildings but few are available; designers would build in a sustainable way but developers don’t ask for it and developers in turn complete the cycle by claiming they would provide such buildings only if investors were willing to pay for them.

It’s time to investigate why everyone involved -- investors, developers, constructors, tenants -- pass the responsibility onto someone else. As we are yet to have extensive research available for the Indian market, the findings of a survey conducted by RICS in 2007 (based on nearly 50,000 RICS members across the US, Europe and rest of the world) has some insights to offer. Nearly 70% of respondents consider ‘lack of knowledge of available tools and techniques’ and ‘lack of expertise’ as the two most important barriers to uptake of sustainability measurement tools. Other important barriers cited by respondents include cost (50%), lack of time (45%), difficult to access (45%) and no client demand (44%).

To break this circle of blame, what the real estate sector requires is an integrated approach to sustainable development linking policy, research and practice. Increasing awareness among users registering for green building certification, industry stakeholders and government initiatives point in the right direction. What would probably facilitate the sustainability movement is some substantial evidence between property value and sustainability in terms of higher rents, attracting tenants and reducing costs.

Incidentally, a cost-benefit analysis of US Green Office Buildings, undertaken by RICS, looked at the impact on the selling prices of green buildings and concluded a premium in the order of 16%, implying that upgrading the average non-green building to a green one would increase its capital value by that much.

Sustainable development needs a clear vision for credible sustainable future and to improve the quality of life for all involved. A building as a power station producing its own energy is the future that visionaries of the west have predicted.

—The writer is managing director & country head of RICS India, a membership organisation for land property and construction professionals

PEs come back to realty sector

PEs come back to realty sector
The Economic Times, May 24, 2009, Page 6

Anand Rawani & Raja Awasthi NEW DELHI

WITH the stockmarkets set on the path to recovery and top realty companies such as DLF and Unitech managing to raise funds to bridge their debts, money has started trickling into the Indian realty sector that had tanked in September 2008 after years of a joy ride.

Private equity players, who had virtually vanished from the realty frame, are now returning with domestic funds taking the lead, say a clutch of real estate lenders and funds that SundayET spoke to. According to some of the most optimistic projections, the Indian realty market will attract Rs 10,000 crore to Rs 12,000 crore in the next 12 to 18 months.

“We have already entered into two deals and expect to close them within the next couple of months,” says.

Subhash Bedi, MD of Red Fort Capital, a real estate private equity. Mr Bedi says that most of the international funds dedicated to the sector have packed up, but local firms sitting on cash piles have started to take a relook at the sector.

Says Kaustuv Roy, ED of Cushman & Wakefield, a realty consultancy: “There has been a movement as far as funds to the realty companies are concerned. While nothing much was happening between July and December 2008, in the last couple of months, almost every real estate fund has become active and is aggressively looking at good projects for investing.”

This new interest, however, comes with riders. Funding is mostly on a project-to-project basis, and most of the investments are through special purpose vehicles. “The market is improving and there has been a pick up in sales over the last three months, many institutional financiers and PEs are showing interest but they are keen on working on a project-to-project basis,” agrees Rohtas Goel, CMD, Omaxe Group.

Kotak Realty Fund, a prominent player in the sector is looking to deploy around Rs 3,000 crore in the next two years in the Indian realty sector. “We are looking at a couple of transactions in this quarter and are more interested in the residential space,” says CEO S Sriniwasan.

These institutional investors are now mainly looking at the residential space. In fact, both the deals, where Red Fort Capital made investment, are in the residential segment. Ritesh Vohra, director at Saffron Asset Advisors, a private equity fund operating in the real estate sector, adds that they are in search of good projects for investment during this quarter.

In addition to PEs, other financial institutions have also begun to spot opportunities to deploy funds. Indiabulls Financial Services is also said to be evaluating several projects for investment. On a sober note, Anshuman Magazine, CMD of CB Richard Ellis (South Asia) feels that despite the improvement in sentiments, it may take some time for actual deployment of the money.

Realty builds on stability theme

Realty builds on stability theme
The Economic Times, May 24, 2009

Neha Dewan, ET Bureau

A stable government indicates a glimmer of hope for the real estate sector, feel a number of realty developers and consultants. Affordable housing will get an impetus and sentiments are bound to improve, according to them.

Navin M Raheja, MD, Raheja Developers says that the coming of a stable government means that the real estate sector is poised for a bounce back and revival. "Formation of a stable government will certainly bring back the lost confidence among investors and end-users. Affordable housing will get all ears and accomplishment. There should be good news very soon that housing will be available for all the segments of society."

Like Mr Raheja, others too are of the view that affordability will gain prominence in the new government. "We expect that government will promote affordable housing in a more aggressive manner. We also hope that the government will announce special funds for building affordable corridors for needy sections of the society and give easy clearance for these projects," says Rohtas Goel, CMD, Omaxe.

Besides affordability, some feel that there is a clarion call for key issues to be addressed. Since the real estate sector has not fared well over the past year, they feel that a lot more proactiveness will be required to make it recover.

"The new regime will need to address the serious infrastructural deficit in our metros, as well as that in many short-changed Tier II/III cities. We are hoping for measures to make construction of mid-to-low income housing attractive to developers, an easement in procedures for the clearance of new projects and the clarification of the SEZ/STPI issue. Coupled with generalized efforts to boost the GDP, these measures will give the Indian real estate sector a badly-needed shot in the arm," feels Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj (JLLM).

Agrees Anshuman Magazine, chairman and MD, CB Richard Ellis, South Asia, who says that the outcome of the elections means continuity and more aggressive decisions to stimulate the economy. This, according to him, will have a direct impact on the real estate sector.

"We have already seen some movement in the market since last month and with these results, the sentiment will improve significantly. However the real estate industry is expected to remain slow this year and will continue to face challenges. A gradual movement towards improvement is however expected to begin soon enough," he says.

Tata Housing building on the strength of low-cost homes

Tata Housing building on the strength of low-cost homes
The Hindu Business Line, May 25, 2009, Page 2

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The low-cost housing sector should be de-linked from real estate and be accorded infrastructure status. — Mr Brotin Banerjee, MD and CEO, Tata Housing
--------------------------------------------------------------------------------

S. Shanker , Mumbai

Tata Housing Development Company created waves recently when it announced its intention to build nearly 1,000 homes priced in the range of Rs 3.9-6.7 lakh.

The Nano homes, as they are popularly termed, got a flood of over 6,000 applications within a week of the announcement. The project will be commissioned in Boisar, 100 km from Mumbai, and planned as an integrated township.

In an interview to Business Line, Mr Brotin Banerjee, Managing Director and CEO, Tata Housing, talks about this plan in greater detail.

What was the starting point for this project?

Our initiative was not meant for making profits but work as a business model. There is a shortage of 24 million dwelling units in the country and I don’t think it is possible for the Centre and State governments to invest that kind of money for this purpose. It is only the private sector or a private-public participation that will work.

This game will be high in volume and comparatively lower in margin than the high-end formats.

If it is done in places where we have offices such as Delhi, Bangalore and Mumbai, the incremental cost as far as overheads is concerned will not be high.

Did market conditions prompt you to get into low-cost housing?

This company started in 1984 but, in many ways, was revived only in late 2005-2006 when an entire new management came onboard. It was not that market conditions forced us to go in for low-cost housing but it was what we would have done anyway.

You have allocated eight of the 63 acres for this initiative at Boisar. Will the balance area see high-end products?

We are not looking at high-end apartments but relatively higher compared to the low cost — a different product mix. We will have higher margins there but then these will not sell in two weeks.

How long will the entire project take given that landowners are partners?

We have a joint development arrangement with the landowners at Boisar.

In general, we do a mix of joint development, outright and joint venture. This project will take four years though the low-cost housing will be done in two.

Are you looking for land or would you prefer joint ventures as a business model?

We have about 100 offers from landowners from different cities but then all may not materialise as they would have to come to terms that margins will be lower in low-cost housing.

Would you be more inclined towards industrial hubs in Bangalore and Gurgaon for your next phase of low-cost projects?

These may come up in the other side of Bangalore, near Peenya. We try to look in between cities and industrial centres to provide relatively low-cost, and yet good quality living standards for people in industrial areas while attracting those living in crowded cities.

What must be done to give low-cost housing a boost?

I seriously believe that the low-cost housing sector should be de-linked from real estate and be accorded infrastructure status. Loans for such projects should be made available at lower rates and also qualify for stamp duty and registration fee waiver. Development and approval charges should similarly be done away with or at least subsidised. Some initiatives need to be taken for promoting reputed corporates to enter this area.

How much of your portfolio will comprise low-cost housing?

Today, it is only one among eight or nine projects. Going forward, I see it at 20-25 per cent, while another 25-30 per cent would be affordable homes with high-end products taking up the balance.

Do you see early signs of a revival in the realty sector?

Yes, and we are getting early signs even in the premium end. But, then, these are very tentative signs. One can be sure and more confident once the new government is in place. It will start to some extent in October-November. But then, if this does not happen then we are in for trouble.

Do you see a further price correction in the days to come?

No, I believe most developers have realised that they need to bring prices down for the middle class. If they only have to chase high-end clients, who already have two or three homes, how many more will they buy? It only leads to speculation. Home loan interest rates too, have to come down further.

Do you suggest that people buy now?

Yes, a buyer today is getting something that was at a higher price earlier. Second, whatever be the stated price, it is up for negotiation. Even if it is 20 per cent less than the quoted price, there is room to wriggle out another 15 per cent. Many developers who bought land in the suburbs where prices are lower have reduced their expectations and are offering projects at lower prices.

Finally, what do buyers look for, be it low-cost or high end?

Irrespective of his income profile, buyers look at the reputation of the builder. However big a developer is, project timelines must be met and pricing has to be transparent.

Tata Housing building on the strength of low-cost homes

Tata Housing building on the strength of low-cost homes
The Hindu Business Line, May 25, 2009, Page 2

--------------------------------------------------------------------------------
The low-cost housing sector should be de-linked from real estate and be accorded infrastructure status. — Mr Brotin Banerjee, MD and CEO, Tata Housing
--------------------------------------------------------------------------------

S. Shanker , Mumbai

Tata Housing Development Company created waves recently when it announced its intention to build nearly 1,000 homes priced in the range of Rs 3.9-6.7 lakh.

The Nano homes, as they are popularly termed, got a flood of over 6,000 applications within a week of the announcement. The project will be commissioned in Boisar, 100 km from Mumbai, and planned as an integrated township.

In an interview to Business Line, Mr Brotin Banerjee, Managing Director and CEO, Tata Housing, talks about this plan in greater detail.

What was the starting point for this project?

Our initiative was not meant for making profits but work as a business model. There is a shortage of 24 million dwelling units in the country and I don’t think it is possible for the Centre and State governments to invest that kind of money for this purpose. It is only the private sector or a private-public participation that will work.

This game will be high in volume and comparatively lower in margin than the high-end formats.

If it is done in places where we have offices such as Delhi, Bangalore and Mumbai, the incremental cost as far as overheads is concerned will not be high.

Did market conditions prompt you to get into low-cost housing?

This company started in 1984 but, in many ways, was revived only in late 2005-2006 when an entire new management came onboard. It was not that market conditions forced us to go in for low-cost housing but it was what we would have done anyway.

You have allocated eight of the 63 acres for this initiative at Boisar. Will the balance area see high-end products?

We are not looking at high-end apartments but relatively higher compared to the low cost — a different product mix. We will have higher margins there but then these will not sell in two weeks.

How long will the entire project take given that landowners are partners?

We have a joint development arrangement with the landowners at Boisar.

In general, we do a mix of joint development, outright and joint venture. This project will take four years though the low-cost housing will be done in two.

Are you looking for land or would you prefer joint ventures as a business model?

We have about 100 offers from landowners from different cities but then all may not materialise as they would have to come to terms that margins will be lower in low-cost housing.

Would you be more inclined towards industrial hubs in Bangalore and Gurgaon for your next phase of low-cost projects?

These may come up in the other side of Bangalore, near Peenya. We try to look in between cities and industrial centres to provide relatively low-cost, and yet good quality living standards for people in industrial areas while attracting those living in crowded cities.

What must be done to give low-cost housing a boost?

I seriously believe that the low-cost housing sector should be de-linked from real estate and be accorded infrastructure status. Loans for such projects should be made available at lower rates and also qualify for stamp duty and registration fee waiver. Development and approval charges should similarly be done away with or at least subsidised. Some initiatives need to be taken for promoting reputed corporates to enter this area.

How much of your portfolio will comprise low-cost housing?

Today, it is only one among eight or nine projects. Going forward, I see it at 20-25 per cent, while another 25-30 per cent would be affordable homes with high-end products taking up the balance.

Do you see early signs of a revival in the realty sector?

Yes, and we are getting early signs even in the premium end. But, then, these are very tentative signs. One can be sure and more confident once the new government is in place. It will start to some extent in October-November. But then, if this does not happen then we are in for trouble.

Do you see a further price correction in the days to come?

No, I believe most developers have realised that they need to bring prices down for the middle class. If they only have to chase high-end clients, who already have two or three homes, how many more will they buy? It only leads to speculation. Home loan interest rates too, have to come down further.

Do you suggest that people buy now?

Yes, a buyer today is getting something that was at a higher price earlier. Second, whatever be the stated price, it is up for negotiation. Even if it is 20 per cent less than the quoted price, there is room to wriggle out another 15 per cent. Many developers who bought land in the suburbs where prices are lower have reduced their expectations and are offering projects at lower prices.

Finally, what do buyers look for, be it low-cost or high end?

Irrespective of his income profile, buyers look at the reputation of the builder. However big a developer is, project timelines must be met and pricing has to be transparent.

Tata Housing building on the strength of low-cost homes

Tata Housing building on the strength of low-cost homes
The Hindu Business Line, May 25, 2009, Page 2

--------------------------------------------------------------------------------
The low-cost housing sector should be de-linked from real estate and be accorded infrastructure status. — Mr Brotin Banerjee, MD and CEO, Tata Housing
--------------------------------------------------------------------------------

S. Shanker , Mumbai

Tata Housing Development Company created waves recently when it announced its intention to build nearly 1,000 homes priced in the range of Rs 3.9-6.7 lakh.

The Nano homes, as they are popularly termed, got a flood of over 6,000 applications within a week of the announcement. The project will be commissioned in Boisar, 100 km from Mumbai, and planned as an integrated township.

In an interview to Business Line, Mr Brotin Banerjee, Managing Director and CEO, Tata Housing, talks about this plan in greater detail.

What was the starting point for this project?

Our initiative was not meant for making profits but work as a business model. There is a shortage of 24 million dwelling units in the country and I don’t think it is possible for the Centre and State governments to invest that kind of money for this purpose. It is only the private sector or a private-public participation that will work.

This game will be high in volume and comparatively lower in margin than the high-end formats.

If it is done in places where we have offices such as Delhi, Bangalore and Mumbai, the incremental cost as far as overheads is concerned will not be high.

Did market conditions prompt you to get into low-cost housing?

This company started in 1984 but, in many ways, was revived only in late 2005-2006 when an entire new management came onboard. It was not that market conditions forced us to go in for low-cost housing but it was what we would have done anyway.

You have allocated eight of the 63 acres for this initiative at Boisar. Will the balance area see high-end products?

We are not looking at high-end apartments but relatively higher compared to the low cost — a different product mix. We will have higher margins there but then these will not sell in two weeks.

How long will the entire project take given that landowners are partners?

We have a joint development arrangement with the landowners at Boisar.

In general, we do a mix of joint development, outright and joint venture. This project will take four years though the low-cost housing will be done in two.

Are you looking for land or would you prefer joint ventures as a business model?

We have about 100 offers from landowners from different cities but then all may not materialise as they would have to come to terms that margins will be lower in low-cost housing.

Would you be more inclined towards industrial hubs in Bangalore and Gurgaon for your next phase of low-cost projects?

These may come up in the other side of Bangalore, near Peenya. We try to look in between cities and industrial centres to provide relatively low-cost, and yet good quality living standards for people in industrial areas while attracting those living in crowded cities.

What must be done to give low-cost housing a boost?

I seriously believe that the low-cost housing sector should be de-linked from real estate and be accorded infrastructure status. Loans for such projects should be made available at lower rates and also qualify for stamp duty and registration fee waiver. Development and approval charges should similarly be done away with or at least subsidised. Some initiatives need to be taken for promoting reputed corporates to enter this area.

How much of your portfolio will comprise low-cost housing?

Today, it is only one among eight or nine projects. Going forward, I see it at 20-25 per cent, while another 25-30 per cent would be affordable homes with high-end products taking up the balance.

Do you see early signs of a revival in the realty sector?

Yes, and we are getting early signs even in the premium end. But, then, these are very tentative signs. One can be sure and more confident once the new government is in place. It will start to some extent in October-November. But then, if this does not happen then we are in for trouble.

Do you see a further price correction in the days to come?

No, I believe most developers have realised that they need to bring prices down for the middle class. If they only have to chase high-end clients, who already have two or three homes, how many more will they buy? It only leads to speculation. Home loan interest rates too, have to come down further.

Do you suggest that people buy now?

Yes, a buyer today is getting something that was at a higher price earlier. Second, whatever be the stated price, it is up for negotiation. Even if it is 20 per cent less than the quoted price, there is room to wriggle out another 15 per cent. Many developers who bought land in the suburbs where prices are lower have reduced their expectations and are offering projects at lower prices.

Finally, what do buyers look for, be it low-cost or high end?

Irrespective of his income profile, buyers look at the reputation of the builder. However big a developer is, project timelines must be met and pricing has to be transparent.

Unitech sells over a third of its projects

Unitech sells over a third of its projects
Business Standard, May 23, 2009, Page 5

Unitech Ltd, the country’s second-biggest real estate developer, has sold more than aquarter of its launched projects in the first two months of the financial year as it tweaked its product mix and lowered prices.

The New Delhi-based company, which had launched 9 million square feet of residential space, has sold 2.5 million square feet (over 2,000 units). The developer has been able to garner as much as Rs 850 crore from the sale, according to a presentation the developer made to its investors earlier this month.

“We have received an overwhelming response to our residential projects. The strategy of launching the projects at an average Rs 3,000 per sq ft is paying off,” said a company official.

Unitech has launched two residential projects in Gurgaon, three in Kolkata and two in Chennai. The company is also offering residential plots at its Noida and Kolkata projects.

In Gurgaon, the cost of a Unitech apartment is Rs 26-28 lakh, while in Kolkata the price of an apartment starts from Rs 15 lakh. The apartments are between 800 sq ft and 1,500 sq ft in size.


“The company has over Rs 2,000 crore of debt obligations for the current financial year and it is marketing its projects aggressively to raise money from its residential projects to be able to clear its debt,” the official said.

At these prices, the company should not find it difficult to sell its projects, said a Mumbai-based equity analyst.

The company plans to launch 30 million square feet of space across 40 projects in the current financial year. The proposed projects will span 15 cities and seven metros, accounting for nearly 7 per cent of the company’s land bank which is estimated at 11,000 acres, the presentation showed.

Unitech had raised Rs 231 crore from the sale of its Marriott Courtyard hotel in Gurgaon, while it raised another Rs 500 crore from sale of its proposed corporate office in Saket. The company has a target of reducing its debt by Rs 1,000 crore by endJune.

Last month, Unitech raised $325 million (Rs 1,625 crore) from selling additional shares to overseas investors to repay apart of its debt, which is currently estimated at Rs 7,800 crore, according to the company presentation.

Real Estate Intelligence Report, Friday, May 22, 2009

Real Estate Intelligence Report, Friday, May 22, 2009

Why FIIs are buying

Why FIIs are buying
Business Standard, May 22, 2009, Page 9

There is a huge opportunity to bring about structural change, but the new govt must deliver

Akash Prakash / New Delhi

There is a huge opportunity to bring about structural change, but the new government must deliver, says AKASH PRAKASH

The markets have given a resounding thumbs up to the strengthened mandate given to the Congress party and Dr Manmohan Singh. Equity markets were up 17 per cent on Monday and then kept their gains the following day, with record volumes driven by a billion dollars of FII buying. FII flows look to remain strong, and it seems as if the markets have entered a new and sustained higher base level.

What accounts for this renewed FII interest? Why is everyone so excited about India once again?

FIIs are basically making the bet that in their new term, Dr Manmohan Singh and his cabinet will move ahead decisively on economic reform and policy action. The government knows what needs to be done, there are enough committees and commissions whose recommendations are lying unimplemented and investors are making the bet that the new government has the political will to push ahead. This government has the chance to fundamentally strengthen the country’s structural growth outlook.

There is a clear feeling that the quality of the mandate is vastly different today compared to 2004, both in terms of the relative strength of the Congress vis-a-vis its allies and the credibility of Dr Manmohan Singh within the Congress party itself. There are no excuses for non-performance this time. Many serious investors are also drawing positive longer term conclusions from the revival of national parties, greater correlation at the state level between governance and votes and the Indian public’s desire for a stable and centrist government. Talk of a maturing of the Indian democracy is all pervasive.

There were three main reasons why investors were cautious on India.

One was the proximity to Pakistan and the related geo-political risks.

The second was the risk of a severely fractured electoral verdict leading to a compromise candidate for PM, and the Third Front led by the Left coming to power. The risk of weak governance threatened to derail the country’s long-term outlook in the minds of investors. A weak government would not be able to tackle structural issues like the fiscal deficit or targeting of subsidies.

Third, the bears have been going on about the risks to the India growth story if global capital flows were to remain negative. The idea being, how will India fund its infrastructure deficit, given the limited local sources of long-term capital? Without strong inflows we cannot finance the fiscal deficit and 8 per cent GDP growth simultaneously.

Of the three bear arguments only Pakistan remains, as the electoral verdict has been far clearer than expected, and already Indian companies have regained access to global capital. In the last 10 days alone Indian companies have raised almost $2 billion of equity. Strong inflows, both FII and FDI, will restart a positive feedback loop of rising investment driving strong earnings, leading back to investment.

Investors now once again seem willing to place India along with China as one of the handful of countries which can get back to trend growth rates in 2010. Global players seem to be willing to re-rate the country and have the confidence to look through the short-term growth slowdown and focus once again on the long-term picture.

A second related issue driving market performance is the level of under-investment among investors. Most India dedicated funds are either too defensively positioned in terms of sectors and stocks or have too high a cash level. Among the regional funds, India for most shops had been an underweight, and now most are scrambling to catch up and in fact go overweight. A lot of regional investors are a little worried on China and seem willing to take some money off the table there and redeploy it to India. The India dedicated hedge funds are at best 30-35 per cent net long, and once again have the potential to up their exposure. Even locally one can expect the surge in confidence to push money into the markets either directly or through insurance and mutual funds.

Therefore one can expect to see continued strong FII inflows into India, as investors play catch up. At every dip one can expect strong buying. India’s very strong performance year to date (especially after the elections) only adds further pressure to not be seen being underweight.

There is also the strong possibility that many of the India funds will now get inflows, as retail flows chase performance, and most investors bet on further convergence between India and China’s market performance.

What can go wrong? Obviously, the new government can fail to act and continue dithering on policy action. If we see no action and just continued setting up of committees and groups of ministers, then that would be extremely unfortunate and set us up for huge disappointment.

Sign posts that investors will be using to calibrate the heightened expectations begin with the new cabinet. Obviously a technocrat becoming the FM would be seen as a big positive both from a capability perspective and in sending a clear signal that the Prime Minister is in charge. Investors will also want to see greater representation of youth as well as the critical infrastructure ministries going to capable ministers. There remains some doubt on Dr Manmohan Singh’s assertiveness and willingness to tackle entrenched political equations, and the new cabinet formation will answer many of these questions.

The next important milestone will be the budget itself. What is the game plan to tackle fiscal issues, better targeting of subsidies, infrastructure funding, the GST, etc?

Independent of the government being indecisive and frittering away the mandate, the only other negative in this scenario is the huge and almost inexhaustible supply of paper in the pipeline. Corporate India has already raised about $2 billion in the last 10 days, and the tap is now wide open. Combined with some disinvestment from the government, we could easily see $8-10 billion being raised in equity capital this year. This will act as a natural cap on the markets, though it will be great in boosting domestic capital formation and growth.

Valuations are not really cheap either, though earnings are likely to get upgraded, and this can also cap the markets upside, at least in the short term.

This election is being seen by many as a game changer. India has a real chance of breaking out, attracting strong inflows and being positioned in investors’ minds alongside China. We were always supposed to have an economic model more suited to today’s economic realities but with much weaker governance, could the governance handicap be reduced?

From the financial markets perspective, everything now depends on execution. The new government has the mandate, there is a huge opportunity to bring about structural change across sectors, and the policy road map is also clear. We need the new government to deliver.