Firms revive plans to set up local units, NRIs rush to buy property

The Corridors by Ireo – Gurgaon’s Sector 67A

The Corridors by Ireo – Gurgaon’s Sector 67A

The sharp depreciation in the rupee has been a cause of concern for many. It impacts corporations as cost of imports rise and, in turn, has a bearing on inflation. Those with exposure to unhedged overseas debt need to cough up more money to meet debt obligations. A falling rupee also erodes value for overseas investors who buy Indian stocks.

However, there is another side to the story of the rupee’s decline.

One aspect of this is fairly well known—the benefit that the information technology (IT) companies enjoy when the rupee falls because a substantial part of their earnings is in dollars. Typically, IT stocks benefit from currency depreciation as a Rs.1 fall adds anywhere between 30 basis points and 50 basis points to their margins. One basis point is one-hundredth of a percentage point.

There are other aspects as well. For instance, with the rise in import costs, a few companies are reviving plans to build factories. Non-resident Indians (NRIs) are actively showing interest in real estate in India. And attractive valuations are forcing some private equity firms to take a look at some target companies.

Zicom Electronic Security Systems Ltd, an electronic security provider, is considering an option of setting up a factory in Himachal Pradesh. “We import a lot of products and are impacted by the rupee’s depreciation. Earlier, we did think of an option to manufacture locally, but lack of support from government and local rules acted as deterrents,” managing director and chief executive Pramoud Rao said. “However, given the kind of volatility rupee is seeing now, we are reviving our plans to set up a factory in Himachal.”

Read more: Mint

Curbs on property investment abroad may boost premium segment in India

RBI curbs on overseas property investments to protect the rupee seems to be good news for Indian real estate as capital which otherwise would have been diverted abroad will now stay in the country.

According to Anuj Nangpal, Managing Director, Investor Services, DTZ India, the announcement, however, does not clarify as to what will happen to partially completed overseas property transactions where part payment has been made.

In its bid to control the outflow of capital from the country, RBI slashed the annual cap on automatic outflows from $200,000 to $75,000 for an individual. Along with it, a ban has been imposed on overseas real estate purchases with immediate effect.

In recent times, there has been a surge in Indians buying properties in Dubai, Singapore, Malaysia and the suburbs of London.

“These investors interested in real estate will now be restricted to consider properties only within the country. This is likely to give a boost to real estate demand in the country, especially in the premium and luxury segment, as these investors are mostly high net worth individuals (HNIs),” he said.

Read more: Business Line

Indian realty scales up to adopt CSR as a strategy

Corporate Social Responsibility (CSR) is a new concept in the Indian real estate segment and companies are still going through the learning curve. Some are adopting it with a greater amount of conviction, while for others, it is an emerging trend to explore with a ‘why not’ mindset. However, smart realty companies have discovered the benefits of CSR, both, in terms of engaging their stakeholders as well as becoming a brand enhancer. A beginning has definitely been made, wherein CSR has, of late, made inroads as a strategy within the segment. Companies are slowly but surely shifting their focus to broader and deeper issues surrounding sustainability, accountability and governance concerns.

A real estate company organises a painting competition, another undertakes a sweeping drive for a day. Some companies organise schooling for the children of construction workers. Yet another organises a blood donation camp for a day as its CSR effort. Welcome to the world of CSR in the Indian real estate sector.

Realty companies are now beyond the stage of getting into CSR only for fulfilling mandatory provisions. This, despite the fact that CSR means different things to different companies and hence, the Indian realty sector has not completely been able to link CSR strategy with their overall brand image. It is in general believed that while a local brand can take a selective and partial approach in the formulation of a CSR strategy, a global brand strategy should be defined from a multidimensional and multistakeholder perspective.

Read more: The Times of India

The importance of FDI for Indian real estate

While banks have aided most real estate development in the past, the cost of debt is getting higher by the day. The strict guidelines introduced by the RBI have made real estate lending even more expensive and cumbersome. Currently, the costs of key inputs for real estate development are up by at least seven per cent. This is over and above a rise of about 25 per cent last year. Labour cost is up by 10-15 per cent and the costs of steel and cement by about seven per cent. To add to this, funding costs have headed north. If we look at a city like Mumbai, the recent DCR amendments would add to the developers’ costs by about 15 per cent, which includes the fungible premium payable, if the builder opts to take the additional 35 per cent FSI option. Cumulatively, this comes to an approximate hike of 20 per cent hike in construction cost, which most developers would pass on to the consumers. The Indian real estate sector is in dire need of foreign funding, both, in terms of maintaining growth and for the benefit of consumers.

Unlike most developed economies, India does not allow REITs (Real Estate Investment Trusts). Many would point to the M&A route but this is also a lackluster option, as it comes at a cost of about 20 per cent. Meanwhile, REMFs (Real Estate Mutual Funds) – India’s tentative answer to the international REITs model, adapted to the existing Indian mutual funds platform, do not seem to be the right answer, either.

Read more: The Times of India

Economy

Rupee falls to historic low of 62 per dollar, Sensex plunges over 400 points

The rupee dropped to a historic low of 62.00 per dollar in late morning trade on Friday on good demand for the US currency from banks and importers in view of sharp fall in equity market.

The rupee resumed slightly higher at 61.35 per dollar as against the last closing level of 61.43 at the Interbank Foreign Exchange (Forex) Market.

But, it fell sharply to an all-time low of 62.00 on good dollar demand from banks and importers in view of fall in equity market, before quoting at 61.90 per dollar at 1045 hours.

It moved in a range of 61.32 and 62.00 per dollar during the morning deals.

In global market, the US dollar see-sawed against major rivals in the early trade, in line for further volatility as the week wraps up with more data to fuel Federal Reserve consideration of tapering monetary stimulus.

Read more: The Times of India

India plans to double bilateral trade with Sri Lanka in 3 years

India plans to double its bilateral trade with Sri Lanka to $10 billion in the next three years, Indian High Commissioner Y.K. Sinha has said.

Speaking at the 67th Indian national day celebrations today, Sinha highlighted the growing economic and commercial partnership between India and Sri Lanka and noted that since the operationalisation of bilateral Free Trade Agreement (FTA) in 2000, trade has multiplied by as much as eight times.

Trade volumes crossed $5 billion in 2011-12 and the cumulative FDI approvals for Indian investments stand at about $1 billion since 2003, with investment inflows of $160 million in 2012, Sinha said.

The High Commissioner highlighted that India’s developmental assistance projects, based on the priorities set by the Government and the people of Sri Lanka, have made impressive progress.

Under the Small Development Project scheme, a number of projects have been successfully completed and many more included to “our growing project portfolio in all parts of Sri Lanka”, he said.

These projects straddle diverse sectors such as health, education, agriculture, fishing, small and medium enterprises development, community empowerment, art, craft and culture.

Read more: Business Line

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