Anuj Puri, Chairman & Country Head, Jones Lang LaSalle Meghraj
Despite all the misgivings about a so-called ‘global recession’ and the US subprime crisis, it is a good time to be doing business in India. For quite a while now, this country’s economy has been robust enough to sail through any turbulence. India has the ability to show high single-digit growth rates for very long periods of time. Moreover, India is a saving-oriented nation that has a domestic savings rate of 33%, which means it is better equipped to absorb the fallout of variations in the economy. This is more than the extravagantly wasteful economies of most developed countries – including the US – can claim.
Nevertheless, many Indian corporates are yielding to confusion and uncertainty about the future. In many discussions with my peers, I have noted a generalized fear that the worst may yet come. The logic seems to be that the economic fluctuations we have been witnessing recently are the direct result of a global recession, compounded by the US subprime crisis. However, India is not primarily grappling with foreign-induced recession fallout, but with problems arising from its own soaring inflation rates, which had recently risen to an all-time high of 12.75%. We are grappling with the effects of high crude oil prices, rapid appreciation of the rupee and the consequent reactions of the stock market.
More specific to the property market – we are indeed witnessing a correction, but this is predominantly brought on by the sharp 200-300% rise in property rates seen over the last two years. It is perfectly natural and expected that there would be an adjustment of such irrational growth.
Do we have a challenge situation on our hands? Yes, but it is one brought about by lack of faith and information. The origin of the challenge does not lie in foreign markets, but our own. Nor is the challenge anywhere as big as its is being made out to be. India is nowhere as vulnerable to fallout of the US recession as its is being fashionably assumed. I’d like to point out here that according to international credit rating agency Standard and Poor’s, India and China are in the category of ‘not vulnerable’ countries.
Asia Pacific is only about India and China now. No other part is experiencing any exponential growth, and India is among the biggest growth drivers. Foreign players will continue to invest in India and China and cut back markets that are less of a priority, especially on the developed ones where investments take longer to pay off.
However, unlike China, India's growth story is a domestic market driven growth. India is better placed than China to withstand the worst effects of an economic downturn. China, unlike India, is more susceptible to the US financial crisis because it follows the East Asian export-led model of economic growth.
In any case, neither India’s nor China’s markets are particularly integrated with the United States, since both have market fundamentals that have separately evolved from the West over the past 60 years. China and India will not participate in a worldwide recession and will, in fact, be hedges against this. All the prophecies of doom that are floating around these days seem to rely on the erroneous assumption that the global markets are pulling out of India. The fact is that lenders and investors have merely become understandably and justifiably cautious.
China and India possess 40 percent of the world’s population. While only 20 percent of this can purchase to international standards, combined this is still larger than the U.S. disposable middle class income. Moreover, both largely supply much of the world’s consumer goods. Right now, India’s fundamentals are very strong and so is domestic demand. Only the more export-oriented businesses are likely to suffer in the short term - mainly firms in for an IPO, or financial services companies.
We all know that there has been a slowdown of sorts in the real estate sector, but we are equally aware of the fact that this slowdown was predicted anyway, and that it is specific only to some overheated markets in the North and the recent stock market fluctuations. Some domestic investors have certainly sought to sell their holdings and withdraw from the property market. However, this does not represent the international investor scenario and is not even altogether bad news. It is, in fact, positive in the sense that real estate values are correcting in overheated pockets, leading to a brake on illogical land valuations. Major players are still making serious inquiries.
How will real estate companies deal with the current scenario? It is very clear that diversification and corporate performance will be the watchwords in the future. Of course, this is a time of change, and change often gives rise to uncertainty. But corporate history has amply displayed that strong companies that emerge even stronger in turbulent times always react to change with renewed focus and energy.
They react by improving their cost efficiencies. They do it by concentrating on business, maximizing it and leveraging their intellectual capital. They do it by becoming more client-oriented, helping their clients tackle the economic situation more efficiently by change their value propositions. They do it by being even better employers, making talented employees feel valued and enlisting them to help cut costs. And they do it by raising their efficiency bars, clarifying their vision and improving their scalability.
Recession? Ladies and gentlemen, India's economic growth will be on a higher trajectory (8 to 9 per cent) in the next three years. Infrastructure spending, domestic consumption and investment will continue to drive economic growth - growth that will attract increased capital flows, be they long-term or short-term in nature – into the sector of our business operations. India is a trillion dollar economy today. At an annual growth rate of 8% over the next seven to eight years, it will double this figure –and economists agree that India’s growth story will continue over the next three decades.
For companies with a winning hand of service modules and deeply entrenched market presence, the term ‘global recession’ is little more than a call for differentiated strategies to accommodate evolving market dynamics - not doomspeak and panic. Let us take inspiration from the case of Germany. Companies there are making the right goods and delivering the right services at the right time. China, India, Russia and the countries of central Europe are rapidly expanding their economies and need the capital goods that German companies specialize in. The machine tool industry, for example, has seen orders grow at around 10 percent annually for the past three years.
Let us take a brief look at the questions that investors will be asking themselves in the current scenario:
• What are the company’s products?
• How are the company's products better placed compared to those of the competitors?
• What is the company's past financial performance?
• What are the initiatives that the company is taking – to mitigate competition, and to manage risks associated with the industry?
The only real question is whether our collective entrepreneurial spirit will be encouraged or discouraged by the recession in the US. The current scenario will certainly separate the ‘men from the boys’. In a recession, fortune favours the brave.
Despite all the misgivings about a so-called ‘global recession’ and the US subprime crisis, it is a good time to be doing business in India. For quite a while now, this country’s economy has been robust enough to sail through any turbulence. India has the ability to show high single-digit growth rates for very long periods of time. Moreover, India is a saving-oriented nation that has a domestic savings rate of 33%, which means it is better equipped to absorb the fallout of variations in the economy. This is more than the extravagantly wasteful economies of most developed countries – including the US – can claim.
Nevertheless, many Indian corporates are yielding to confusion and uncertainty about the future. In many discussions with my peers, I have noted a generalized fear that the worst may yet come. The logic seems to be that the economic fluctuations we have been witnessing recently are the direct result of a global recession, compounded by the US subprime crisis. However, India is not primarily grappling with foreign-induced recession fallout, but with problems arising from its own soaring inflation rates, which had recently risen to an all-time high of 12.75%. We are grappling with the effects of high crude oil prices, rapid appreciation of the rupee and the consequent reactions of the stock market.
More specific to the property market – we are indeed witnessing a correction, but this is predominantly brought on by the sharp 200-300% rise in property rates seen over the last two years. It is perfectly natural and expected that there would be an adjustment of such irrational growth.
Do we have a challenge situation on our hands? Yes, but it is one brought about by lack of faith and information. The origin of the challenge does not lie in foreign markets, but our own. Nor is the challenge anywhere as big as its is being made out to be. India is nowhere as vulnerable to fallout of the US recession as its is being fashionably assumed. I’d like to point out here that according to international credit rating agency Standard and Poor’s, India and China are in the category of ‘not vulnerable’ countries.
Asia Pacific is only about India and China now. No other part is experiencing any exponential growth, and India is among the biggest growth drivers. Foreign players will continue to invest in India and China and cut back markets that are less of a priority, especially on the developed ones where investments take longer to pay off.
However, unlike China, India's growth story is a domestic market driven growth. India is better placed than China to withstand the worst effects of an economic downturn. China, unlike India, is more susceptible to the US financial crisis because it follows the East Asian export-led model of economic growth.
In any case, neither India’s nor China’s markets are particularly integrated with the United States, since both have market fundamentals that have separately evolved from the West over the past 60 years. China and India will not participate in a worldwide recession and will, in fact, be hedges against this. All the prophecies of doom that are floating around these days seem to rely on the erroneous assumption that the global markets are pulling out of India. The fact is that lenders and investors have merely become understandably and justifiably cautious.
China and India possess 40 percent of the world’s population. While only 20 percent of this can purchase to international standards, combined this is still larger than the U.S. disposable middle class income. Moreover, both largely supply much of the world’s consumer goods. Right now, India’s fundamentals are very strong and so is domestic demand. Only the more export-oriented businesses are likely to suffer in the short term - mainly firms in for an IPO, or financial services companies.
We all know that there has been a slowdown of sorts in the real estate sector, but we are equally aware of the fact that this slowdown was predicted anyway, and that it is specific only to some overheated markets in the North and the recent stock market fluctuations. Some domestic investors have certainly sought to sell their holdings and withdraw from the property market. However, this does not represent the international investor scenario and is not even altogether bad news. It is, in fact, positive in the sense that real estate values are correcting in overheated pockets, leading to a brake on illogical land valuations. Major players are still making serious inquiries.
How will real estate companies deal with the current scenario? It is very clear that diversification and corporate performance will be the watchwords in the future. Of course, this is a time of change, and change often gives rise to uncertainty. But corporate history has amply displayed that strong companies that emerge even stronger in turbulent times always react to change with renewed focus and energy.
They react by improving their cost efficiencies. They do it by concentrating on business, maximizing it and leveraging their intellectual capital. They do it by becoming more client-oriented, helping their clients tackle the economic situation more efficiently by change their value propositions. They do it by being even better employers, making talented employees feel valued and enlisting them to help cut costs. And they do it by raising their efficiency bars, clarifying their vision and improving their scalability.
Recession? Ladies and gentlemen, India's economic growth will be on a higher trajectory (8 to 9 per cent) in the next three years. Infrastructure spending, domestic consumption and investment will continue to drive economic growth - growth that will attract increased capital flows, be they long-term or short-term in nature – into the sector of our business operations. India is a trillion dollar economy today. At an annual growth rate of 8% over the next seven to eight years, it will double this figure –and economists agree that India’s growth story will continue over the next three decades.
For companies with a winning hand of service modules and deeply entrenched market presence, the term ‘global recession’ is little more than a call for differentiated strategies to accommodate evolving market dynamics - not doomspeak and panic. Let us take inspiration from the case of Germany. Companies there are making the right goods and delivering the right services at the right time. China, India, Russia and the countries of central Europe are rapidly expanding their economies and need the capital goods that German companies specialize in. The machine tool industry, for example, has seen orders grow at around 10 percent annually for the past three years.
Let us take a brief look at the questions that investors will be asking themselves in the current scenario:
• What are the company’s products?
• How are the company's products better placed compared to those of the competitors?
• What is the company's past financial performance?
• What are the initiatives that the company is taking – to mitigate competition, and to manage risks associated with the industry?
The only real question is whether our collective entrepreneurial spirit will be encouraged or discouraged by the recession in the US. The current scenario will certainly separate the ‘men from the boys’. In a recession, fortune favours the brave.
5 comments:
The turmoil in the global financial markets has cast its shadow on India’s largest real estate deal. India’s real estate developers, especially the mid-sized ones, have been facing a liquidity crunch since last year. Developers can no longer tap the external commercial borrowing route, while domestic borrowing costs have gone up on account of tight-fisted monetary policy, which is likely to harden further in days to come. In addition, the stock market has taken a beating with real estate stocks falling off their recent highs. Other sources of funding for instance, the London Stock Exchange’s Alternate Investment Market or listing real estate investment trusts abroad are also not feasible in current market conditions.
The tender that BPTP won, beating bigger players like DLF and Omaxe, has an allowed the company to seek an extension to pay the first tranche.Failure to make the payment within the extended deadline would result in the award being scrapped and a fresh tender being announced.What impact will it have on the Indian economy in general and Indian real estate sector in particular???For more view- realtydigest.blogspot.com
Food for thought. Clears lot of doubt and inspirational in a way.
Anuj, I feel you have very accuratelay articulated the difference between the US and Indian economies. Although I would have a slightly different view on two points from your article:
1. Defining 480 Mn people to have buying power equal to international standards between China and India. I guess you were referring to Purchasing Power Parity (PPP) of the potential midde class in China and India. I feel India's middle class is no more than 60-75Mn people strong. I wonder if China has the balance 400 Mn people in that category.
2.You have hinted in your article of a possible decoupling of US and India's economies. I seriously doubt that. India's break from the so called "Hindu growth rate" of 3-4% occured in large part because of the impetus from IT and apparel exports between 1997-2007. Any breaks in this growth, I feel, will significantly impact domestic growth.
In its latest release, the IMF has reduced GDP expectations for India to 8% for 2008 and 7% for 2009 (this is down from an earlier 9% and 8% respectively).
You may also read more on my website at www.meridharti.com
More later,
Ashish Abrol
www.meridharti.com
Well, the global turmoil has certainly taken its toll on the Indian Real Estate market too, which is evident from the stock prices of leading players liek DLF and India Bulls Real Estate but yet, people are making headway to these exhibitions, certainly comes as a surprise. I would be very keen to understand what were the sales figures at this exhibition and what sort of buyer is still spending money in Indian rela estate at this moment.
If we follow the laws of creation, we shall find that everything is in constant state and the loss of one leads to gain of other. Here its time for US to loose and India to gain. Now it lies with we Indians on how best we make use of this situation.
krishna.kpraja@gmail.com
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