Indian government all set to keep an eye on FDI flows

By Vipin Agnihotri

Lucknow, India: It has come into the notice of The India Street that the Indian government is all set to put in place routines to check whether foreign investors setting up shop in India are complying with the norms prescribed for them. Initial signs are that the new norms could make it necessary that companies file an annual compliance report or an inspection system could be put in place.

Talking exclusively to The India Street, one government official said: "We are yet to decide what kind of monitoring we want to do but the idea is to ensure that companies do not have to face inspectors form another government agency and at the same time comply with the undertaking given to us.”

It is worthwhile remembering that the move follows apprehensions about non-compliance of FDI norms by Hutch Essar, however the government did not find any sort of evidence of the sectoral caps being breached. There is a strong possibility that the finance ministry, which has proposed putting in place few guidelines, was expected to come up with a concrete proposal over the next few weeks.

The pivotal factor here is that North Block had suggested that the department of industrial policy and promotion (DIPP) deal with the issue taking into account the detailed review of the FDI guidelines but in the absence of any proposals the issue is expected to be dealt with later. Point to be noted here is that the Foreign Investment Promotion Board (FIPB), which cleared Vodafone's acquisition of Hutch Telecom International's stake in Hutch Essar last month, had also asked DIPP as well as the finance ministry to put in place norms that assist companies come clean on indirect shareholding.

"While the chances of a breach of cap were less when a company was planning to enter the Indian market since FIPB still vetted a large number of proposals, the possibility of violation at a later date was not ruled out since no government agency was monitoring it," pointed out Avadh Singh, Finance journalist based at India.

Generally speaking, there are 19 activities that NBFCs (non-banking finance companies) can undertake. However, there is a chance that the government allows a company to carry out one or two businesses but the company could actually be doing all 19. In other word, there is no mechanism to check such violations at the present juncture.

Keeping aside the monitoring routine, the government and Reserve Bank of India (RBI), the nodal body for automatic investment proposals that do not need prior approval from any agency, have to decide on which agency should be given the task.

Not so long ago, the security agencies have also recommended that the government keep tabs on foreign companies investing in India. Though, a proposal was opposed by both North Block and DIPP saying that they do not have the ability to track investment.

There has been no progress on the National Security Council's proposal to put in perspective a new law to ensure that foreign investors did not turn into a threat to national security with most economic ministries opposing the move. If sources are to be believed, the NSC Secretariat is expected to put forward a draft Bill for other ministries in the coming months.

Overseas borrowing costs of Indian companies all set to increase

By Vipin Agnihotri

Lucknow, India: If the Indian government fails to meet its deficit reduction targets, the overseas borrowing costs of Indian companies could increase over the next two years. You may ask: Why is it so? This is because failure to meet deficit reduction targets can adversely impact the sovereign credit rating of the country.

On the other hand, if the rating worsens, there will be fewer takers in overseas markets for Indian bonds and international lenders will charge more from Indian firms looking to raise money. “The rating models used by international lenders factor in sovereign ratings, and a drop in the ratings would have an impact (on the rating of Indian companies and the interest rate they would have to pay), pointed out Shailesh Nigam, partner and head, Dreamz advisory, an audit firm.

And that is where, India’s Fiscal Responsibility and Budget Management (FRBM) Act, 2003, come into the fray to shrink revenue deficit, the difference between the government’s revenue receipts and revenue (or operational) expenditure, to zero by March 31, 2009. When The India Street analyzed the whole issue, it came into light that in the financial year leading to the deadline, 2008-09, India and the government will likely be in election mode - the present government assumed office in 2004 for a five-year term. I do not expect the government to be in a position to control expenditure in an election year.

It is worthwhile remembering that Finance minister P. Chidambaram has already said in public that he expects revenue deficit to be 1.5 per cent of GDP at the completion of the current financial year (2007-08), a minimization of 50 basis points compared with the last financial year (2006-07). The pivotal factor here is that if the government has to meet the targets set by the FRBM Act, it would have to minimize its revenue deficit by a further 150 basis points. Interestingly, in his Budget speech in February, Chidambaram had said the government was on course to achieve this.”

Meeting this target had a bigger impact on India’s sovereign rating than is usually understood,” pointed out highly placed source at Finance ministry. “It was seen as a sign that the entire political spectrum was in favour of fiscal prudence and any deviation would affect India’s credibility,” pointed out Sunil Dang, Editor of The Day After Magazine. Though, some experts do not see cause for alarm. “I don’t see a major danger at this point,” said Azim Khan, a renowned economist at rating agency when asked about the possibility of the government falling short of its target.

Up till now, the government’s attempt to squeeze revenue deficit has succeeded primarily on account of the sharp growth in tax revenue. In my opinion, maintaining momentum of revenue is critical for meeting FRBM targets. Statistic wise, revenue growth has been spurred by an economy that grew by 9.2 per cent and 9 per cent in the matter of two years. Initial signs are that India’s GDP will grow by over 8 per cent in 2007-08 and 2008-09.

In the last few years, the combination of strong economic growth, introduction of the FRBM Act, and better government finances have encouraged international credit rating agencies to push India’s sovereign rating into investment grade. For example, Standard & Poor’s Rating Services raised India’s rating to investment grade in January after a gap of 15 years.

INDIAN STOCK MARKET – AN OUTLOOK

By Sundaramurthy Vadivelu

Important Disclosure

The views expressed below are the opinions of the author based on the principles of technical analysis, a science that has been tested and proven for more than hundred years. The views are unbiased and informative in nature. These do not constitute an offer to buy or sell stocks. Every effort has been made by the author to ensure correctness of the information presented. The author cannot be held responsible for omissions, mistakes etc.

Investing or trading in stock markets is a high risk activity. Those who cannot afford to risk their money should refrain from dealing in stocks.

The author has no vested interest in any of the stocks mentioned. He and/or his close associates may or may not be having positions at the time of writing this article.

The reader needs to understand that this article is purely for informative purposes only and all transactions, if entered into by him will be solely at his risk. The author does not guarantee that the projected targets will be achieved within the stipulated time frame.

Source for the price data displayed in graphics and tables:

National Stock Exchange of India Limited, Mumbai, India (www.nseindia.com)

- - - - - - - - x - - - - - - - - x - - - - - - - -

In this article let us analyze the current market scenario, how Nifty has performed during last 4 years and comparison of index vis a vis some of the individual index stocks.

Current Scenario:

As of now, there is no significant threat to the indices. No major reversal sign has been observed in the monthly charts of Nifty. Watch the reversal patterns displayed in the chart below. Bearish “three outside down” pattern occurred in April 2000 and bullish “three outside up” pattern was seen in June 2003. Since then, Indian markets are on a high.

In the absence of strong reversal signs, it may be concluded that markets will continue their uptrend.

Wave analysis:

The following table illustrates the wave count and their retracements:

This means that after the completion of the 5th wave (which needs a confirmation) a downtrend is likely to begin.

The longer term target for the Nifty, when calculated from a low of 920, works out to 4600. This will give wave 5 a gain of 177.20%.

What is the reason behind this huge rise in index?

Like all other financial markets, Indian markets are also governed by the fundamental principles of demand and supply gap. When interest rates were lowered, stock market looked an attractive option and investors began to look for opportunities. Huge foreign funds are another reason for the upsurge. Liquidity is one more factor – one can easily transact with a click of a mouse unlike the old days when physical share certificates were in use.

Whatever be the reason behind any move, it is always reflected in the charts. All other factors, namely, business conditions, economy growth etc. are always discounted when analyzing the market technically.

How many stocks got benefited from this nearly five fold rise in index in the last 4 years? Let us analyze some of the index stocks.

* Adjusted Close 1 due to stock split / bonus / rights issue

** Close 1 as on 31/07/2004

*** Close 1 as on 31/08/2003

It can been seen from the above table that not all the index stocks have performed in the same manner. ABB, BHARTIARTL and SAIL have outperformed when compared to the overall index.

It should be noted here, that the ‘performance’ in stock market by a scrip has nothing to do with the financial performance of the company. It just implies that the investors have chased this stock more strongly compared to the rest.

We can see no direct relationship between the overall index performance and the individual stocks’ performance. This indicates the demand and supply gap scenario for the stocks discussed.

What could be the reason for the uneven performance?

The price of a particular stock on a given day is decided by the market participants. They are

FII’s or the foreign institutional investors FI’s or the financial institutions MF’s or the mutual funds Long term investors Medium term investors Short term investors Day traders Speculators Punters Derivative traders

When thousands of people are trading a particular stock, no one can be very clear of what the other trader thinks. This leads to volatility and uncertainty in the markets.

When one person buys a stock, obvious reason is that he thinks that it will go up. The person who sold the stock thought that it would either go down or he had enough profit or loss.

In a complex scenario like this, price fluctuations happen regularly. The investor needs to take advantage of the situation by buying when the demand just starts picking up for the stock and sell when it just starts diminishing.

Having said that it is difficult for an ordinary investor to completely understand and assess the market status.

What can the investor do now?

Ideally, one would like to take some money home. If one has remained a long term investor and likely to get some profit, he can book it.

Remember that the chance of the profit going down may increase with the time a stock being held.

For the one who wants to invest for long term in stocks, he has to be cautious, as can be seen from the charts and tables provided.

Some thoughts on investing in stocks:

Not too many people understand the stock market dynamics. So take professional advice, consult a qualified and experienced person. He may charge you a little, but it is worth taking the risk than worrying later.

Invest the amount that you can afford to lose. There are only probabilities, no certainties in financial markets.

Keep doing your research. Observe prices at least once a week. If you think you gained a reasonable amount, book your profits at least partially.

Last but not least, never borrow money to invest in stocks thinking that prices will always go up!

Good luck.

India Real Estate Jitters

By F. Colton

I have recently read about a few laws the India Government has passed to slow the real estate market in India. The false claim that too many foreign real estate funds are driving up real estate values is complete rubbish. First and most importantly, I can count on two hands the number of foreign real estate funds that have actually invested money on a real estate project in India. It's just not happening like the media claims. Foreign Real Estate funds find the India market appealing, but it still lacks the transparency available in other more mature markets.

So how are the real estate prices being driven up? For one, local Indian developers and local speculators are driving the cost of real estate up. Most are ignoring real estate fundamentals and are paying any price to participate. The smart ones are forming Joint Ventures with landowners to reduce their exposure and risk. Most of these joint ventures are win-win scenarios.

Real estate is a cycle of booms and busts. The Indian government may try and smooth the peaks and valleys but inevitably the cycle must continue. Moreover, India is in need of a complete overhaul in infrastructure. Why scare away the very investor you are looking to attract to help build out the infrastructure India sorely needs? There is no so called bubble in the India real estate marketplace. Of course prices are too high in some areas and will come down. However, the fact remains that almost 95% of the buildings in India are Class D or F in other parts of the developed world.

India needs foreign capital to drive its real estate market and to compete with other Asia countries. Foreign investment brings jobs and skill development not currently found in domestic India. The India Government should be focused on enticing FDI and not protectionism. India has momentum, but as history has shown, it can change overnight by thoughtless, short-term strategies that may get one reelected but not allow the country to modernize.

In summary, India is at yet another cross roads. This won’t be the last one but it is an important signpost directing foreign investment in or out. Unlike more mature markets, India’s modernization depends on foreign capital. The world is globalizing and is looking for alternative investments outside of the US and Europe. India can either open the door a little wider to foreign capital or discontinue FDI liberalization and risk foreign capital finding other alternative markets. Large foreign investors are a finicky bunch.

The author is the Editor, The India Street.

HDFC Bank to go Rural

By Vipin Agnihotri

HDFC is chartering an aggressive expansion plan to leave footprints in all districts in the most populous state of the country, Uttar Pradesh in a phased manner. The bank is all set to come up with hub and spoke model to reach out to its prospective rural clients. Neena Singh, executive vice president of the bank pointed this out in an exclusive chat to The India Street.

“At the first stage it will have a full fledged branch (the hub) equipped to deal with the needs of the rural economy. At the next stage (the spokes) are designed to reach out to its clients in the villages across the country,” she said.

“We had an agri meet today to apprise our agri-relationship managers on the ways to milk the catchment areas in Uttar Pradesh and Uttarakhand,” pointed out Neena Singh. A detailed plan aimed at strong rural presence was being chalked out. In this financial year, the bank would be expanding presence in 19 districts in the state, she added.

At the next stage of its rural operation, Singh said, the bank was planning point of sale machines, capable of cash deposits and withdrawals and it was also allowing its clients a limited number of free transactions through ATMs of associated co-operative banks and public sector banks.

"Another step is our decision to take the more demanding route of connecting with clients directly, rather than taking the easier direct sales agent route. Agri extension education camps will be held in districts to increase farmer’s awareness of our products and also of farm equipment, yield efficiency, farm machinery and other inputs of importance for farmers," she said.

It is worth mentioning in this regard that specific rural products have been planned like tractor loans, kisan gold cards and warehouse receipts. HDFC bank’s rural clients would also be given nearly all the urban-centric banking products including savings account, fixed deposits, automobile loans, foreign exchange facilities and loans against gold.

And the rural rich population will get wealth management solutions, mutual fund products and stocks and commodities trading facility by the bank. The bank’s employees will also be trained to offer investment advice to its rural clients.

Indian govt may cut customs duty to keep inflation below 5 per cent

By Vipin Agnihotri

Indian government may minimize custom duties on number of items to keep inflation below 5 percent. Finance Minister P Chidambaram, while talking to The India Street said government was ready to take further fiscal steps to control inflation and keep it below 5 percent.

It is worth mentioning in this regard that inflation had crossed 6.7 percent in starting of the year- the highest level seen in more than two years. Though, due to number of measures taken by government and Reserve bank of India (RBI), it has since softened to 5.7 percent by the end of April.

“It is still above the tolerance limit. Our objective now is to keep inflation between 4 and 4.5 percent. We will make every effort to bring it down,” pointed out Chidambaram. The pivotal factor here is that if government’s fiscal measures would not be adequate, the central bank would also take further monetary steps towards this end.

If experts are to be believed, government’s determination to check inflation between 4 and 4.5 percent and not allowing rupee to depreciate, in turn, will see continuation of tightening of the money supply. From the starting of the year, government has taken various measures such as reducing custom duties on the import of pulses, edible oils, steel, cement and other essential commodities.

In addition, Reserve Bank of India also took a number of measures to restrict the money supply. These sorts of steps led to rise in interest rates, which affected sectors like real estate and consumer durables. Statistic wise: In the last three months, home loan interest rates have increase by around three percentage points to 12 percent from 9 percent. What’s more, the consumer loan rates have also increased substantially. The increase in the interest rates have also raised interest burden on the companies.

“To contain inflation through restricting money supply, Reserve Bank of India almost stopped buying dollars from the market. This has led to steep appreciation of rupee by around 8 percent since the starting of the year,” pointed out Dr Suvrokamal Dutta, renowned finance expert.

This move has affected exporters very badly. But one thing is for sure; it has helped the government to contain inflation. In other word, as rupee appreciated, the prices of imported items in rupee term declined, which has forced the domestic producers not to increase prices of their products.

At the same point of time last year, inflation had moved up in the range of 5 percent, lots of analysts were of the opinion that it would automatically come down to around 5 percent in the next two weeks because of the base effect. But, fact remains that if government is interested in bringing down inflation in the range of 4 percent to 4.5 percent, the high interest rate regime would continue for some more time.

Finance minister has already said that high global prices of crude oil and metals were due to rising demand in India and China, besides stagnation in Indian agricultural production, were the main reason behind high inflation. “There is no short cut to bring down inflation. Prices will not come down unless we augment supply of food grains including wheat, rice, pulses and edible oil,” pointed out Chidambaram.

DLF gets IPO nod

By Dhruva Jyoti Chowdhury Kolkata, India: The real estate giant are now coming up with a bang. DLF has got the nod from Securities & Exchange Board of India (SEBI) for its Initial Public Offering (IPO), which is expected to raise a record Rs 13,600 crore.

If all goes well, DLF’s market capitalisation is expected to be around Rs 1,05,00 crore, equivalent to $25 billion, which will place DLF at seventh position in market capitalization rankings in the world. And after the IPO, DLF Universal’s promoter KP Singh will be among the richest Indians.

The approval, which will make a way for the DLF plan to put its fist on the capital market. It is worthwhile to mention here that the company had filed a new prospectus in January this year after its first attempt came to a stand still due to certain objections over the complaints by the minority shareholders'.

DLF owned by KP Singh proposes to enter the capital market with a public issue of 17.5 crore equity shares of Rs 2 each. The post-issue dilution would be over 10% of the equity capital of DLF. While he will continue to own 87.5 per cent stake in the company. "The company could raise more than or equal to Rs 13,600 crore," a company official had said in January. The fund would be deployed to meet construction cost, land acquisition and repayment of debt.

When asked when the issue would open, the company official said: "We are on the job." Merchant bankers, however, said it would take at least a month as the issue size is big. In its second attempt, the DLF plans to raise about Rs 13,600 crore but with lesser shares being offered through the IPO, reflecting the company's increased valuation over last year. DLF last year, proposed to offer 20.2 crore-equity shares, but the prospectus containing that offer was withdrawn.

Despite the severe beating, reality stocks have taken in the secondary market, the price band for the DLF issue was expected to be between Rs 550 and Rs 600 a share, said an investment banker on the condition of anonymity. As the face value of the equity is Rs 2, according to SEBI guidelines, the issue cannot be priced less than Rs 500 a share. “Since the minimum price cannot be below Rs 500, the price band is expected to be at around Rs 550-600, and the final price could be at the upper limit,” said the banker.

DLF executive claimed the Reserve Bank of India had allowed foreign institutional investors (FIIs) to invest in the company’s IPO, and the real estate major was expecting good response from institutional investors, including mutual funds, banks and insurance companies. Depending upon the success of the DLF issue, investment bankers said, another realty company, Omaxe, could enter the market.

DLF will use its IPO proceeds in part to acquire land, complete on going projects and retire debts. The company's vice chairman Rajiv Singh says that land acquisition programme will cost Rs 6,500 crore (Rs 65 billion), while the completion of on-going projects will cost about Rs 3,100 crore (Rs 31 billion). The company, at present, has loans worth Rs 4,000 crore (Rs 40 billion).

DLF Vice Chairman Rajiv Singh said that the IPO proceeds will be utilized for land acquisition, which will cost about Rs 6,500 crore and the DLF hopes to complete the construction of some on-going projects, which will take about Rs 3100 crore within a few months from now.

Singh further said that DLF retains the rights to prepay loans that the company holds to the extent of about Rs 4,000 crore. This is an overall statement of objectives. It will be decided after the exact issue size is finalized. The deployment will be decided thereafter. Principally the money is for acquisition and for completion of our projects.

When asked about the Special Economic Zones three special economic zones, which are multi-product ones in Ludhiana, Amritsar and Manesar, Singh said that. DLF have received approval to set up four special economic zones of a very large size. Three are going to be a multi purpose special economic zone and one is going to be a collection of product specific zones in Amritsar.

According to Singh, as far as the investment programme goes, no exact number is quantified as yet. The land acquisition proceedings still need to take place. DLF do estimate the total investments processing would be of Rs 40,000-50,000 crore (Rs 400-500 billion). But DLF's investment in this would be restricted to much smaller amount, which will be known after the projects are specifically conceptualized.

The start is due in Amritsar not in Ludhiana. Amrtisar is the first one, which will get off the block. We do hope that we will be able to start something physically on the ground in a few months time. We should be up and running in terms of marketing.

The DLF is also targeting 100-125 hotels in the next five-eight years while some in the next few months. But Vijay Singh declined to comment on them and said that future forecast at this juncture in an IPO process is something business hotels should be the first ones to take off. But said that substantial sites for the location of such hotels. As and when our partnership gets finalized, we will implement these projects rapidly. Some of them are going to be independent sites and many of them are going to be co-located with the other development projects of the company, whether in retail space or in IT park space.

Singh further added that there has been some kind of trouble between the Delhi Development Authority as well as the Delhi high court regarding the joint venture of the company with Indiabulls which is just a co-investment into a particular project.

When asked about the Foreign Investment Promotion Board (FIPB) clearance for the FIIs to come into the pre-IPO placement, Singh said that in pre-IPO placement, we are not contemplating any FIIs. The pre-IPO placement will only be for the domestic investors and institutions. We may be able to give you some details about this in a few days time. Only one thing I can say is, unfortunately, we are constrained in terms of making a projection at this moment in the IPO process.

Foreign funds bet on real estate

New Delhi, India: With more than 35 big-ticket foreign funds having alreadychecked into the real estate sector India, global realtors, banks and bondhouses from New York to Jerusalem are suddenly finding the opportunity toinvest in India irresistible. If the year 2006 marked some of the country's biggest land deals, the future bets on India realty are set to usher in a gold rush. A study by the India Brand Equity Foundation (IBEF) suggests that the first half of 2007 will see at least 20 more funds making an entry into India. This translates into $10 billion of foreign direct investment in realty. In fact, the study indicates that India would be merely scratching the surface of the potential infrastructure opportunity with $191.51 billion of investments committed over the next five years. The sector is estimated to grow at a CAGR of 15% over the next few years. Merrill Lynch forecasts that the Indian realty sector will grow from $12 billion in 2005 to $90 billion by 2015. Prominent global funds including Carlyle, Blackstone, Morgan Stanley, Trikona and Warbus Pincus are sitting on a total corpus of $12-15 billion, say experts. Eminent global real estate business houses like the Philippines-based Ayala, and Signature group, Och-Ziff Capital, EurIndia and Old Lane from Dubai are keen on sizeable investments into India . While FDI from the UK is also likely to pick up in the next few months, investors in the US, Israel, Malaysia and Singapore want to be a part of the India story. Australian real estate consultancy major LJ Hooker, with 700 odd franchises in South East Asia, has opened its India account with a franchisee in Bangalore. US-based global investment bank Goldman Sachs and Unitech, the largest listed real estate company in India, will set up a special purpose vehicle (SPV) with a corpus of $208.7 million for investments in the real estate sector. DLF Ltd has forged a 50:50 joint venture with Nakheel, the largest property developer of the UAE, for two integrated townships in India at a whopping investment of $10 billion. The Tel Aviv-based $650 million real estate major, Alony Hetz is planning to invest $100 million in various residential projects in the country, mostly in Tier-II and Tier-III cities. Zurich-headquartered Credit Suisse, the world's leading financial house, is finalising on a $1 billion fund to invest in India's real estate sector. Dawnay Day International, the $10 billion UK-based investment company, plans to invest $1.5 billion in Indian real estate in the next two years. Chennai recently witnessed two big-ticket property deals. AIG Real Estate Fund and RMZ Corporation purchased an 11-acre plot at Guindy for $686.9 million and Shyam Kothari, in another deal, bought IDBI's 2.5 acres Boat Club property in Chennai for $40.3 million. Experts believe the sector couldeasily see at least $400-500 million of fresh FDI in the next 3-4 years, a sizeable chunk of which would primarily flow into residential and commercial projects. Source: The Financial Express

India Real Estate is Surpassing India Stocks for Investors

By Vipin Agnihotri

Lucknow, India: First some facts,

Circa 1999: The term ‘Indian real estate’ was a scary one. As a matter of fact, investing in real estate for capital appreciation and income was unheard of.

Circa 2005: The consensus was that there is a real estate ‘bubble’ that can burst anytime.

Circa 2007: Real estate in India emerged as another asset class perfect for diversification as well as in optimizing returns.

As you can pretty much imagine, this is how the opinions about investing in Indian real estate changed over the years. With real estate markets more vibrant than ever before, and most importantly with increasing institutional participation in this market, there scope is proliferating. Because of this, increased investor confidence and increased investments in the sector.

In the last few years or so, with more investment avenues opening up and giving better returns, investment in Indian real estate had taken a back seat. The pivotal factor responsible for this situation is the price appreciation in real estate and markets opening up with more sustainable demand.

According to experts, 50 years ago, India does not have a vibrant rental market for retail and commercial space. With increasing demand for retail space and office spaces, these two segments are witnessing improved rental yields and also attractive price appreciation. What’s more, with increased buoyancy, the Indian real estate market now falls in league with stocks, bonds, mutual funds, gold and commodities, and insurance policies as a viable investment option for investors in all categories- individuals, corporates and funds.

On the other side of the coin, residential property is a relatively simple investment route especially for a small individual investors/ buyers, who can buy properties both under construction and ready possession for capital appreciation. It is worth mentioning in this regard that returns increase if expected capital appreciation is higher than interest rates on housing loans. In such kind of situation, individuals can invest in a house property by borrowing from a housing finance company.

“Office and retail space is a more interesting investment option for bigger investors. Here, an investors buys a property and lets it out to a company or a retailer,” pointed out Saddia Abid, Assistant Vice President of Megha Real Estate. She also added that it earns regular rental income and carries the advantages of price appreciation, too. Generally speaking, rental income can range between 11 per cent to 12 per cent on investment, and there is room for capital gains. Again, it is worthwhile remembering that investors are able to leverage much more efficiently by taking the assistance of Lease Rental Discounting (LRD).

According to Rahul Mahajan of Surabhi Real Estate, an investor can buy a vacant or under construction property, invariably available at a lower price as compared to a leased-out asset. The main objective is to earn a higher rental income and a higher yield on his investment. Investor here has to take a call on increase in prices and demand. This in turn results in higher rental. Though, the investor undertakes the responsibility and risk of leasing it out. Eventually, basics of investing prevails- higher the risk, higher the return.

Indian Retail Real Estate fund pegged at US $1-Billion

Indian Real Estate: Moolah Raising Tata Group

Joining hands with the Xander Group Inc., a private equity firm through its group company Trent earlier this month, the Tata group has firmed up plans to raise $ 1-billion for an institutional retail real estate fund.

Xander group, through one or more of its fund vehicles will invest in the development of an institutional retail real estate portfolio in India in partnership with high quality Indian developers. Tata Group’s real estate arm, Trent will anchor tenancy rights and participate with Xander in managing the portfolio and monitoring its growth.

The Tata group is not alone, but quite in line with other big retail players like the Future group that controls retail company Pantaloon Retail and has floated two real estate funds, specifically for the retail sector. And, has prompted the Aditya Birla group to also consider floating a real estate for fuelling its own retail growth.

Xander Real Estate Partners, part of the Xander group, have also recently bought a 20% stake in a Reliance Industries and the Maker Group joint venture, to develop commercial, residential and retail real estate.

Organised retail, which currently accounts for only 3% of the $230-billion (Rs. 9, 40,000-crore) is expected to grow phenomenally at 45-55 %, creating a demand for around 220-million sq. ft. of retail space by 2010. Little wonder then, the Tata group known for its rather aggressive business moves will make a big bang entry into the development of such space.

Industry estimates confirm the organised retail space currently available is only around 27-million sq. ft. Another 90-million sq. ft. is expected to be added by 2008 from 263-mall projects of which 18-million sq. ft. each in Delhi and Mumbai, 9.5-million sq. ft. in Ludhiana, 6-million sq. ft. in Chandigarh and 3.6-million sq. ft. in Ahmedabad.

Source: www.ibef.org