India Not Doing Enough to Attract Foreign Capital

Financial management in India: Some challenges

By Vipin Agnihotri

A developing country like India is characterized by extensive government regulation over its financial system and investment activity. Moreover, it has an under-developed capital market. As a result, financial managers in India have to grapple with the following:

Restriction on capital structure- In an advanced country like the US there are hardly any restrictions on the capital structure a firm may employ and the interest rates the firm may pay on its borrowings. In India, however, restrictions apply to capital structure and interest rates payable on borrowings.

Fewer instruments of financing- In advanced countries business firms can employ a broad range of financing instruments. In the US, for example, a firm may employ several types of equity and preferred capital and a variety of debt instruments. In India, however, the choice of financing instruments is rather limited.

Rationing of commercial bank credit- Commercial banks in India, saddled with the responsibility of serving the needs of a priority sector like agriculture, small scale business and weaker sections of the society, are unable to cope with the credit requirements of industry, which is expected to reduce its dependence on bank credit.

Restriction on investment opportunities- The areas in which a business firm, particularly a large business firm or a foreign concern, can invest in India are somewhat restricted. The opportunities for investment, however, have been widened recently.

Poorly developed securities market- Securities market in India is poorly developed. Trading activity is confined to a small proportion of securities listed on stock exchanges. The secondary market for debentures is virtually non-existent. As a result, many firms find it difficult to raise funds through the securities market.

Greater uncertainty in the supply of inputs- Business firm in India have to contend with erratic and inadequate availability of power and irregular supply of essential raw materials. This renders the task of forecasting and planning difficult. Often, unanticipated developments create financial strains and difficulties.

Complex and tardy bureaucracy- Corporate investment and financial activities are subject to numerous governmental regulations. Financial managers have to wrestle with complex and time- consuming bureaucratic procedures to obtain various sanctions, concessions, reliefs and subsidies.

DLF public offer subscribed to about 80% of its size at first day-

By Avadh Singh

The much-anticipated DLF public offer was subscribed about 80% of its size at the completion of the first day, with the institutional part of the IPO subscribed 1.5 times.

When The India Street looked at the data on the NSE, it clearly showed that compared to 17.5 crore shares on offer, there was demand for about 13.6 crore shares at the close of Monday’s bidding. In theory, at the Rs 500-550 per share price band, the company could mop up about Rs 9,600 crore.

If experts are to be believed, thinking on the part of the company and the merchant bankers was to price the issue at about Rs 525-535 per share and not at the upper end of the band, at Rs 550. In my opinion, by pricing the IPO slightly lower than the upper end, the company would leave some scope for appreciation on listing.

”While the DLF offer got a decent response in the official market, it got a lukewarm response in Gujarat’s grey market with operators and investors preferring to wait and watch,” pointed out Raghu Romeo, stock market expert. It is worthwhile remembering that the per-share premium in the offer, which was quoted around Rs 45 when the issue was formally announced, has now fallen to a range of Rs 29-34, amid thin volumes of trade in the grey markets.

Though, hectic routine was witnessed on application buying counter with operators in the grey market acquiring DLF IPO application at rates ranging between Rs 3500 and Rs 4,000. “I have found it very difficult to fetch a premium of Rs 29 on DLF shares,” one of the participants of the grey market said.

Though the premium on the issue has gone down, few of the participants expressed their hope and said that the IPO can fetch higher premium if the stock markets witness upward trend.

When The India Street contacted several grey market operators, they said that DLF IPO evinced lukewarm response in Ahmedabad market because of the higher valuation of the stock. Another reason that has dampened the sentiment for the DLF IPO in the grey market could be deluge of other IPOs. DLF offering is expected do well in categories other than retail, where it still faces resistance from smaller IPO, which are more fancied.

The pivotal factor here is that leading private sector bank, ICICI Bank has also announced that its follow-on offer is hitting the markets on June 18. It may be pointed out that lots of companies are queuing up to hit markets in the next two moths and funds worth Rs 50,000 crore is expected to be raised from the markets.

Read more DLF IPO articles here

Finally, inflation below 5 percent

By Dr Suvrokamal Dutta

Good news for India, inflation fell below the psychologically worrisome 5 per cent for the first time in 10 months. According to experts, this will provide the Indian government higher fiscal and monetary maneuverability to sustain India’s high growth rate.

It is worth mentioning in this regard that inflation based on wholesale prices fell to 4.85 for the week ended May 26, and the latest price data came barely a week after India galloped into the league of high- growth economies with the gross domestic product (GDP) swelling 9.4 per cent in 2006-07. Inflation was 5.06 in the previous week.

“The fall in inflation, driven by cheaper food prices, might take the pressure off the Reserve Bank of India to execute further monetary tightening to control the runaway price line,” pointed out Pooran Singh, noted economist based at India.

The pivotal factor here is that in its slack season credit policy in April, the Reserve Bank of India had pegged the average annual inflation rate for 2007-08 at 5 per cent and said it would be in the range of 4.0-4.5 per cent over the medium term. There is no doubt that with a series of interest rates hikes in quick succession the Reserve Bank of India has aggressively tightened the monetary screws.

It has come into the notice of The India Street that while the government has cut duties on number of products, including cement and edible oils, the Reserve Bank of India has hiked the cash reserve ratio (CRR) and the repo rate to contain inflation.

“The decline in food prices was significant, with prices of fruits dropping 2.8 per cent. Vegetables also became cheaper by 1.1 per cent, and prices of pulses fell by 0.8 per cent. The arrival of the first few consignments of imported pulses might have eased prices,” pointed out a government official in the finance ministry.

Furthermore, Indian government had decided to import 1.5 million tonnes through public sector trading agencies and 115,000 tonnes have arrived on Indian shores.

While inflation rate is expected to hover around 4.85% level for the next few weeks because of the high base in the corresponding period last year, economists believe that the monsoon and international oil prices held the key to a further decrease.

"A bad monsoon could put pressure on food stocks and prices. It is very important that the rains are good and the crop is healthy," pointed out PV Kamath, business journalist based at India.

Indian realty in superfast lane

London/Mumbai: London may top the global property rates chart, but it’s high-end Indian real estate prices that are growing the fastest in the world.

A new study — ‘Wealth Report 2007’ — by real estate consultancy Knight Frank and Citi Private Bank shows that prime real estate rates in India, along with those in Russia and China, soared 40 to 50 per cent over the last year. The British capital, in comparison, recorded a price growth of 30 per cent in the high-end segment.

Pranay Vakil, chairman of Knight Frank India, told HT: “India’s most expensive residential properties, at an average of Rs 50,000 per sq ft, would be in Mumbai. This includes properties like the Chattan Bungalow on Malabar Hill or Sunita Apartments on Napean Sea Road.”

Liam Bailey, head of residential research at Knight Frank, said upcoming prime locations included St Petersburg and Moscow in Russia, Delhi and Mumbai in India, as well as Guangzhou and Beijing in China.

The report points to the growing influence of high net worth individuals — defined as those with $10 million (Rs 40 crore) in investable assets — on the global property market. This is indicated by the fact that prices for the most expensive properties rose on average by more than 14 per cent in 2006 compared to a 9 per cent rise in the mainstream market.

Rapid economic development, together with the creation of new wealthy sections of society, led to intense competition for the best apartments and villas in prime neighbourhoods — and boosted prices, the report said.

Bailey said prime property would continue to outperform mainstream markets. “Over the next five years, we believe the trend of growing wealth and greater wealth concentration will continue,” he said. “There will be a significant demand and supply imbalance in the best prime market locations. Price growth this year will be lower than in 2006, although prime markets will outperform mainstream markets by quite a margin.”

Incidentally, London is home to the most expensive residential property in the world. Prime property in the British capital costs $4,590 (Rs 1.87 lakh) per sq ft, just ahead of Monaco at $4,370 (Rs 1.79 lakh).

Hyde Park is among the most expensive in London, commanding a price of $8,000-$10,000 (Rs 3.26 lakh to Rs 4 lakh) per sq ft, said Vakil.

Source: www.hindustantimes.com

After US & UAE, Singapore gets bullish on India’s property boom

Impressed by the buoyancy of Indian real estate, Singapore property firms are seeing to establish their presence in the country with high profile projects.

To name a few, there is RSP Architects, The WIRE Group, CPG Group and JTC Corp’s Jurong International, sitting on projects totaling more than 500 million sq ft of floor space.

Jurong International is coming up with a Mega Township in Amritsar. The project will spread over 80Ha. Close on the heels is RSP Architects with a project concerning development of a 1 million sq ft IT Park in Bangalore.

When the craze of developing Special Economic Zone (SEZs) in India has overpowered the domestic builders, how can the international developers stay behind? Joining the SEZ race is CPG Group, a new player from Singapore, who is all set to build a SEZ over the land of 13,000Ha in Mundra, Gujarat.

To see the involvement of Singapore real estate firms in broader way, picture the available office space in Singapore’s Central region, including the shopping malls and corporate towers in its downtown core and Orchard Road. Multiplying the figure by 4 will give the exact sense of business. Entire of which in India is solely being handled by a single Singapore design company – RSP Architects.

Even smaller players, such as CPG, are incredibly busy. CPG has at least 30 million sq ft of projects completed or under construction. Apart from biggies like Jurong which has as much as half of it, other small players, such as CPG, are also busy in pushing their property projects on course.

A number of important real estate projects in Tier II cities like Hyderabad are in hands of Singapore architects. Around some US $45 billion worth of projects are under construction across in India, says the data showcased by property surveys.

Show Day For Global Real Estate Trends

Show day for trends By Ian Fife Ten global trends will keep the property market on the boil The world's equity markets look shaky and key housing markets are in decline. But commercial property markets are powering ahead. Where to put your money? Ernst & Young's global director of real estate, Dale Anne Reiss, has identified 10 worldwide property trends she believes will create opportunities for investors. 1. Investment in infrastructure. Governments don't have enough funds to develop, modernise and maintain their roads, bridges, dams, sewers and other infrastructure. Global investors are beginning to invest in infrastructure as the returns on commercial properties fall. "Infrastructure will quickly rival other property markets," says Reiss, " with trillions of dollars spent to bring infrastructure up to standard or to develop new infrastructure." 2. The US housing market is in decline. Loan defaults are rising this year and some home prices are drastically reduced. This could affect sentiment in other housing markets. One of the most potentially damaging factors is stretched home buyers, says Reiss. Some banks in the UK, for instance, are giving loans of five times buyers' income. 3. Private equity property deals totalled US$160bn in 2006, which made real estate the second most active sector. "Private equity will continue to dominate the real-estate headlines this year," adds Reiss. Even before private equity giant Blackstone's $39bn acquisition of US-listed real estate investment trust Equity Office Properties earlier this year, the trend was overwhelmingly going from public to private and will spread to countries like SA. 4. The globalisation of real estate investment trusts (Reits) will create more Reits outside the US than in it for the first time in 2008, making global property investment easy and widespread. More than 29 jurisdictions, including SA, are adopting the legislation necessary to start the development of Reits. 5. Green buildings, once dismissed by developers as too expensive, will become a must as tenants, lenders, residents and even investors push for sustainability. "Expect green principles to become synonymous in the real-estate industry with cost-efficient operating principles," says Reiss. 6. Hot property markets in Brazil, Russia, India and China will become established in the next few years, with strong flows of direct foreign capital. SA, Mexico, Romania and Turkey are moving up the list. 7. Cross-border capital flow will take off as investors step up the search for higher yields and new opportunities in previously untouched markets. " Given the growing power of petrodollar economies, and the increasing sophistication of global data, we expect capital flows to become more complex over the next 10 years," says Reiss. 8. The power of demographics. India's booming population and rapid urbanisation are spurring housing construction. The wealth of call centre and technology services employees is creating a huge demand for retail. The baby boom generation retiring at the rate of 10m/year in the US has also stimulated a boom in retirement communities for active retirees, and second-home developments. Similar trends are evident in Europe and Japan. Populations of countries in Asia, Africa and the Middle East are getting younger and developers are focusing on creating housing and retail centres there. 9. The so-called café workforce. "Have you noticed the number of people using laptops in coffee shops?" asks Reiss. "They point to one of the biggest potential trends this year: the reduced need for office space." 10. Designing out obsolescence. Expect more developers to embrace building techniques that allow flexibility in the project to cater for different future needs of their users should the market change. In 50 years this trend may minimise the need for redevelopment on the scale we see today.