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The place to be: 10 reasons to invest in India

December 10, 2018

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India’s economy and business landscape are changing, ushering in a period of growth, prosperity and investment opportunities. All the ingredients are in place for India to become a world leader investment destination.

Let’s look a little more closely at just a few of the more compelling reasons why investing in India is an opportunity you can’t afford to miss:

1. The Perfect Demographic For Growth: India is the fastest growing large economy on the planet. Its rapidly increasing population is predicted to overtake China by 2022, and become the largest in the world.

2. Exceptional Consumer Led Demand: A large part of the 1.34 billion people are increasingly sophisticated, technologically literate and wealthy.

3. Supportive Fiscal Regime: The government has been making radical changes to create a more business friendly environment. There is now a uniform tax regime (GST) across all 29 states of India, and introducing an affordable housing programme with additional tax breaks.

4. Dynamic Real Estate Market: India is experiencing an unprecedented demand for both domestic housing and commercial property. Real Estate investment in India’s six major cities doubled in the first half of 2017.

5. Vibrant Private Equity Sector: 2017 was the busiest year for more than a decade for private equity deals in India, with total investments of £16.84 billion.

6. Unprecedented Infrastructure Spending: There is a public infrastructure programme of moving scale. This includes 83,677 km of new road being built over the next 5 years (The UK’s motorway network is a little over 3,000 km).

7. Regulatory Certainty: The government has been decisive. Demonetisation has removed much of the ‘black economy’ and over 6,000 companies suspected of improper activities have been closed. Arbitration and court procedures have been overhauled and sped up.

8. Global Trading Hub: Major international companies, such as Virgin and Amazon are now moving to India to invest in and participate in the expansion.

9. World Leading Computer Technology: India is now recognised globally as a technology powerhouse, with an increasingly IT literate population.

10. Stable Federal Structure: India’s federal structure offers highly effective risk management, that helps protect the economy from any unpredictable events. Which means that investors are more than ever protected against localised market risk.

For these reasons and more, India is now one of the most exciting places to invest. At Red Ribbon, we use our expertise and resources to identify the investment opportunities that have the potential of delivering superior returns to our investors.

Nobody understands that potential for growth better than Red Ribbon Asset Management, which has placed India at the very heart of its investment strategies since the company was founded more than a decade ago. With an unrivalled knowledge of market conditions on the subcontinent, Red Ribbon offers a unique opportunity to share in that vast potential.

Red Ribbon CEO, Suchit Punnose said:

India is more than just an exciting investment opportunity, it’s also a driver to global economic growth and that’s why Red Ribbon has long held the view that no investment portfolio can be considered properly balanced unless at least 10% of its holdings are deployed in Growth Markets and, of course, for us that has always meant India in particular.

At Red Ribbon we are very proud to have been playing our own part in India’s economic resurgence over the last decade, investing in just the kind of projects that are at the heart of the interlocking triangle of growth mentioned in the article: everything from the modular construction technologies now being developed by Modulex so as to deliver affordable housing at the pace demanded by the subcontinent’s urban expansion, through to innovative sustainable energy infrastructure investment. And to see India now firmly established at its place on the economic top table, uniquely well placed to move further forward still is, of course, a particular source of pride for us.

We look forward to continuing to play our part in India’s future, participating to the utmost in the opportunities the subcontinent’s explosive growth has to offer and at the same time providing above market rate returns from our investors in what I am convinced will continue to be one of the world’s most exciting markets for many years to come.

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The Eco Hotel Phenomenon and Donald Trump’s observations

December 10, 2018

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What turns a run of the mill, resource hungry hotel into an Eco Hotel and why does it matter? Well, the clue lies partly in the question: an Eco Hotel isn’t resource hungry at all. Instead of gobbling away at all before it, an Eco Hotel sips and nibbles at its key resources: energy, water and raw materials. Eco Hotels are hard wired to save water and minimise on energy and waste material usage. But what about the second part of the question: why does any of this matter? Look no further than last week’s US National Climate Change Assessment, the work of 300 scientists and 13 Federal Agencies which concluded that “ Earth’s climate is now changing faster than at any point in the history of modern civilisation, primarily as a result of human activities…” Donald Trump may have dismissed the three-inch thick report out of hand as “largely based on the most extreme scenario”, but virtually nobody else is.

And for a President so intent on wrapping himself in a mantle of economic competence (and hotel owner to boot), the supreme irony is that key policies at the heart of a concerted response to adverse climate change are now proving to be drivers of commercial growth too. Eco Hotels are a case in point.

By definition, a non resource hungry hotel will also have reduced operating costs: it’s also likely to have reduced liabilities, will generally produce a higher return on relatively low risk investments and also deliver greater profitability across the board than its more resource hungry counterparts. Those are the hard conclusions arrived at in the seminal sector report for the subcontinent “Green Hotels and Sustainable Hotel Operations in India” and, perhaps inevitably, the markets haven’t been slow to see their potential either. Green hotels are more popular than ever on the subcontinent and if you need solid evidence of that, look no further than the explosive growth of Lemon Tree Hotels after the company’s successful IPO earlier this year.

Donald Trump could usefully brush up on his bedtime reading before leaving the West Wing to resume control of his own hotel chain …

The travelling public (business and leisure) is now increasingly aware of the importance of environmental compliance when it comes to choosing a hotel room, and the current surge in demand on the subcontinent is running well ahead of supply: not least because India’s tourist numbers have reached unprecedented levels in absolute terms as well.

But when it comes to meeting this burgeoning demand in practice, something much more is required than simply re-branding an existing hotel with “green credentials”. Key consumption variables have to be built in from the very beginning of the construction phase: making water saving devices and waste reduction part of the DNA of the hotel from the outset of the project. That’s why Eco Hotels are being built with solar tubing that reflects light across the hotel day and night, resulting in electricity bills that are roughly half those of a conventional hotel and its properties also has a single kitchen which dramatically reduces the carbon footprint. All those savings go straight to the bottom line.

Red Ribbon is the founder of Eco Hotels, the world’s first carbon neutral hotel brand which offers “green hospitality” as part of a progressive roll out across India designed to take advantage of current market opportunities on the subcontinent. The brand meets all key sustainability criteria without compromising on either quality or standards of hospitality and is designed to cater for commercial and recreational travellers alike.

Red Ribbon CEO, Suchit Punnose said:

The boom in Indian tourism (both domestically and internationally) is currently playing a huge part in driving forward the subcontinent’s resurgent hotel and hospitality sector, and as the article says eco credentials are playing a bigger part than ever in determining where this burgeoning tide of travellers are deciding to stay. Recent surveys confirm so called “green credentials” are high up on the scale of priorities when they come to make their choice.

And as the article also says, meeting that demand is certainly not just a matter of a last minute rebranding. To deliver properly on green credentials, the hotel has to be built with eco compliance as part of its structure (from the ground up). Only by doing this will cost savings and sustainability criteria properly come together in the future operation of the hotel, delivering the range of benefits described in the article.

I’m proud that Eco Hotels have done just that from the very beginning of the project, and proud too of the part Red Ribbon has played in developing the brand and its ambitions in the succeeding years, spearheading an environmentally friendly response to India’ resurgent tourism demands.

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Time matters with India’s Real Estate revitalisation

December 10, 2018

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KPMG reported last month that Indian Real Estate Sector has now entered a “revitalisation mode”, with aggregate growth projected to reach $ 650 Billion by 2025 and topping $850 Billion by 2028: the average yearly contribution of real estate to the Indian economy will more than double from its current 7% by 2025. And CBRE India are equally optimistic: in their own quarterly report, snappily titled “India Real Estate: Variance in Construction Costs”, they forecast 17 Million new jobs will be added to the sector and an additional 8.2 Billion square feet of space released by 2025.  It all resonates well with the ambitions objectives of Prime Minister Modi’s Affordable Housing Programme, with Real Estate now set firmly in growth mode, and growing stronger every year. But there’s a dark shadow in the garden…

Each of these influential reports has highlighted a potential issue relating to construction costs on the subcontinent, capable of acting as a brake on growth and with no less than six major conurbations (Chennai, Pune, Hyderabad, Mumbai and Delhi) causing particular concern. Perhaps predictably, Mumbai tops the list of areas where unit construction costs have spiralled over recent years and show little sign of slowing down despite the broadly stabilizing effect of GST legislation introduced by the Modi Administration which helped smooth out some of the worst supply and pricing differentials across the country.

The average cost of construction for a residential apartment in Mumbai is now Rs 3,125 per square foot, compared to the Rs 2,375 per square foot the same apartment will cost in Hyderabad. At one (macro) level the reason for all this is obvious: an increasingly urbanised population pushing up demand for units in the largest conurbations as part of a gradual drift away from the land, but the disparity in relative costs between conurbations is still striking. Inter market differentials of this kind are likely to be caused primarily to an uneven distribution of construction skills, with highly skilled workers drawn to areas of greater demand so increasing the unit cost of labour in specific areas of the subcontinent. Certainly we might expect other variables such as recent sharp rises in the wholesale price of steel to be more uniformly spread across the country.

In short, construction is becoming progressively more expensive in the very areas where more housing and commercial units are likely to be needed most…and that’s a real dilemma.

One answer is to make greater use of just in time delivery systems which are capable of dramatically reducing overall construction schedules: simple maths tells us that if an expensive worker is on site for a quarter of the normal building phase, costs will come down no matter how prohibitive the daily rate. And of course we have now grown used to the significance of just in time methodologies because of the prominence the issue has assumed as part of the current Brexit debate. Just as any significant inhibition on frictionless trade has potential to throw the UK economy into chaos after Brexit, so too the same frictionless technologies can help address systemic cost differentials across the Indian construction sector as well.

Modular Construction prefabricates all of the essential components of the building off site, everything from exterior walls, ventilation systems and internal wiring networks with the parts then arriving on location only when they’re needed: meaning field workers aren’t left waiting around (expensively) for the next phase of the project to get underway. Research has shown that through a combination of just in time delivery techniques and modular technology, otherwise complex units such as student accommodation blocks or hospitals can be erected on site in days rather than the months and sometimes years of conventional technologies. And an added advantage is that Modular Technology also reduces the potential for human error and snagging in the final building which can also be a major but hidden expense on any project.

Modulex Construction is the World’s largest and India’s first Steel Modular Building Company, setting out to meet the challenges posed by India’s urban housing shortages in a practical and dynamic manner. The company is at the heart of a project established by Red Ribbon to harness the potential of India’s markets and delivering opportunities for investors. Because, when it comes to investing on the subcontinent, nobody knows India and its markets better than Red Ribbon.

Red Ribbon CEO, Suchit Punnose said:

Prime Minister Modi has successfully appealed to the youthful and increasingly urbanised population that is currently driving India’s economic growth, not least through his Government’s re-energised Affordable Housing Programme the scale and scope of which has at times been breathtaking. So it should come as no surprise to learn that such an increasingly mobile population is also creating real estate hot spots (and cost differentials) through being attracted to a number of specific locations: by definition, a mobile population is difficult to keep still.

So as it seems to me the resulting cost differentials in construction across the subcontinent are likely to be a fact of life for some years to come yet. But that’s certainly not to diminish the problem, and cost disparities are a problem in India’s most expensive real estate markets, Mumbai in particular. They have real potential to distort the market.

In delivering a workable solution to that challenge most expert commentators now agree that Modular Construction is simply inescapable. No other technology offers the pace and scale of delivery needed to meet India’s housing needs and, as the article points out, it is the perfect corollary for just in time delivery systems. That’s why Red Ribbon was committed to Modulex Construction from the very beginning of the project and we remain committed to it today. I’m convinced it is not only a vital element in meeting market challenges but will also deliver on the unprecedented opportunities currently presented by the subcontinent’s burgeoning economy.

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How and why mid-market hotels are taking over India’s branded sector

December 10, 2018

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In the late 1980’s Esso commissioned a survey of its UK customers and found less than 7% travelled onto Mainland Europe with their cars. Why this reticence on the part of families clearly capable of making their way from Poole to Provence in an overcrowded Metro? And no, it’s not what you think: back in those days we hadn’t even thought of Brexit. As Esso found out, there was a more homely explanation: the Continent simply had far fewer automated pumps on its forecourts, so drivers were in danger of having to talk with an attendant and you know how the English are with languages. Better leave the car behind than risk the unseemly spectacle of sign language on the forecourt with a Frenchman.

And when you think about it, that’s all quite interesting. It’s the reason petrol stations have gradually come to look exactly the same all over the world: with the pumps all roughly in the same place, all self service and roughly the same kind of shop to pay in. It’s why you can now buy a burger (from a screen) in identical McDonalds outlets from Vienna to Vladivostok without once having to speak a word of German or Russian, and it’s why Esso long made sure you can buy your petrol the same way. There’s simply no need to leave the car at home anymore…so we don’t. We buy more petrol instead and everyone’s happy.

Economists call this phenomenon Brand Synergy and until recently India’s mid-market Hotel Sector was widely perceived to be more or less dead to its charms. A senior analyst on the subcontinent memorably (and anonymously) put it as follows: “…it was like an airline that uses a Boeing 747 for travel between Delhi and Mumbai, a Dakota for Kolkata-Delhi, and a Dornier for Bengaluru-Pune”. The poor old travellers never knew what to expect when they got there. Just like trying to buy petrol by word of mouth.

But not anymore…

The subcontinent’s mid-market Hotels including Ibis Styles, Lemon Tree Hotels and Eco Hotels have all made progress over the last decade in adopting a much more uniform approach to product profiling, achieving a consistency in specification that has now seen the mid-market secure nearly half the branded hotel sector: spurred on, no doubt, by an increasing number of private equity investors, none of whom are noted for being slow in recognising brand synergies when they see them.

All of which has made the mid-market uniquely well placed to take advantage of the surge in India’s middle class and increasingly urbanised travellers that has doubled airline occupancy rates over the last seven years.  And with the average cost of building a mid-market room coming in at between Rs 3 Million and Rs 7 Million, breaking even within six years, it all makes bottom line economic sense too. Compare that with the larger branded chains where average construction cost for each room is Rs 15 Million and break even takes 15 years: more than twice as long.  In the past 10 years alone the mid-market has expanded at more than 15% annually (according to Howarth HTL) and now accounts for 43% of total branded stock.

Having got away its successful IPO earlier this year (raising Rs 311 Crore from key investors), Lemon Tree Hotels last week took the trend a stage further by launching its brand overseas: signing a deal for the first of its hotels to open in Dubai next year. It will be the first mid-market hotel on the luxury studded Al Wasi Road, sitting literally in the shadow of the Burj Al Arab and Al Waleed Real Estate’s CEO didn’t miss the significance:  “There was a need for a mid-market hotel of this calibre in this location and India has been the largest source of tourists into Dubai, as well as the UAE as a whole, for over three years now.” To save you Googling it up, the exact figure is 13%: India now accounts for a whopping 13% of total tourist numbers into the Emirates, which shouldn’t come as a surprise to anybody given the subcontinent’s wealth and proximity as well as the population’s found mobility.

And now they’ll recognise at least one familiar, distinctively Indian hotel brand when they get there…Plus ca change.

Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid-market hotel brand, offering “green hospitality” as part of a progressive roll out across India which intended to take full advantage of current market opportunities on the subcontinent. The brand offers sustainable living without compromising on standards of hospitality and is designed to cater to commercial and recreational travellers alike.

Red Ribbon CEO, Suchit Punnose said:

Working as part of the Eco Hotels Project has certainly taught me the importance of branding and product profiling in the hospitality sector, so I was pleased to read about the renewed emphasis on branding generally and unsurprised to see that it has now increased the mid-market share to just shy of 50%. Monolithic 2000 room hotel chains are no longer the first choice for travellers, especially given all the evidence suggests they are increasingly looking for accommodation that also complements their preference for sustainability.

And that’s important because the boom in Indian tourism (domestically and internationally) is playing a significant part in driving forward the subcontinent’s resurgent hotel and hospitality sector. It’s certainly an area that cannot be overlooked when seeking out the best investment opportunities over the coming years.

That’s why I’m very proud that Red Ribbon has played such a significant role in the creation and development of the Eco Hotels Project, spearheading the response to that demand in an environmentally friendly manner.

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Modular Construction: the answer to the shortage of skills in India

December 10, 2018

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Most Indians work in agriculture but next comes construction, and according to the latest Economic Survey the subcontinent’s real estate and construction sector is likely to create more than 15 Million jobs over the next five years, that’s three million every year. To put that in perspective less than 3 Million people are currently employed in the entire UK construction industry. And of the 52 Million building workers employed by Indian companies, 90% are involved in on-site construction with the other 10% busily painting, plumbing and wiring the finished product. It’s fair to say all these painters, plumbers and electricians are skilled workers…but not so the other 90%.

Because the vast majority of India’s construction workers are either minimally skilled or have no skills at all: an astonishing 97% of them aged between 15 and 65 will receive no formal training of any kind before starting work on site and, plumbers and painters aside, most of the skilled workers won’t be getting any cement dust on their boots because they’re probably office based clerks, technicians and engineers. And that’s a real problem…

It’s a problem, because coming the other way down India’s infrastructure and logistics superhighway is an unprecedented surge in demand for urban housing, fuelled by an increasingly urbanised population projected to become the biggest on the planet by 2022. India’s National Skill Development Council predicts that by then the real estate and construction sector will require a workforce of more than 66 Million, so without any obvious core of skilled workers currently able to sustain anything like growth it’s no wonder the sector is starting to show signs of stress.

Of course all this was supposed to be addressed by 2016’s Real Estate (Regulation and Development) Act which was intended to act as a platform for local, State driven planning capable of creating an appropriate environment for improved training and regulatory structures, but so far six States out of 29 have failed to produce any plans at all under the legislation which means finding workers with the right skills in the right place will continue to be a source of real concern.

Billionaire developer Niranjan Hiranandani, head of Hiranandani Construction, has a simple enough solution: just pay unskilled workers less and reap the savings while you can. But that’s not a particularly attractive solution for anyone buying one of his apartments 76 floors up in the Mumbai skyline where quality assurance is far from being a dispensable extra. The behemoth that is Hindustan Construction Company perhaps takes a slightly more realistic approach, going on record last week to say that skills shortages have become a huge problem for the sector: 50% of its workforce needs advanced training just to use the complex machinery now prevalent on most modern building sites. With a heavy tone of understatement a spokesman for the company announced grandly that given these skilled workers are not available, “the only option is to train them”.

Well, it’s not quite the only option…

With no actual shortage of workers seeking employment in India’s urban conurbations, particularly in the light of a seemingly inexorable drift of former agricultural workers from country to town, what if the physical construction process itself could be de-skilled? Why not make a virtue of necessity and draw on this pool of former agricultural labourers to release the margins of between 20% to 70% that Deloitte India predict would follow from a wholesale deskilling initiative? These savings would go straight to the bottom line without endangering the quality and safety of the finished building. Skilled construction workers earn Rs 1,000 a day as opposed to their unskilled counterparts who earn an average of Rs 200.

And there is just such a business model on the market right now, a model with the potential to uncouple construction projects from a seemingly insoluble skills conundrum: it’s called Modular Construction.

Modern Modular technologies allow all of the building’s key components to be put together off site by specialist workers and then assembled locally at the same time as the site works are completed, not only reducing overall completion schedules by as much as 50% but also significantly reducing the need for skilled workers in the construction phase. All of the design and engineering disciplines are instead concentrated at the offsite manufacturing facility leading to labour, financing and supervision costs. Which will all be music to Mr Hiranandani’s ears…

Modulex Construction is the World’s largest and India’s first Steel Modular Construction Company, meeting the challenges of the subcontinent’s current urban housing shortages in a practical and focused manner. The company was founded by Red Ribbon as part of an innovative project to harness the potential of India’s dynamic and evolving real estate markets whilst at the same time delivering opportunities for investors through Red Ribbon platform. Because, when it comes to investing on the subcontinent, nobody knows India’s markets better than Red Ribbon.

Red Ribbon CEO, Suchit Punnose said:

Delivering on India’s stringent housing targets over the next five years presents an enormous challenge for the subcontinent, and that challenge is likely to get more testing still given the underlying demographics of a rapidly increasing and ever more urbanised population. Existing skills shortages within the construction sector have the potential to be a crucial block to meeting these targets, especially given the scale and scope of the training programmes necessary to release a further 3 Million workers into the sector every year for the next five years: never mind the attendant costs which are likely to be eye watering on any basis.

That’s why to my mind the answer has to be Modular Construction. No conventional technologies can beat it for sheer pace of delivery and, with a centralising of skilled labour in the offsite manufacturing facility, it will beat conventional construction methods hands down on overall profitability too.

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A Crypto Kind of Year: Regulating India’s e-Retail Markets

December 10, 2018

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Arun Jaitley is having a crypto kind of year. First he popped up with dramatic effect in this year’s Union Budget Debate, sending the price of Bitcoin spiralling worldwide, and the Finance Minister had barely sat down at this week’s meeting of the Financial Stability and Development Council when the “B” word came up again. Sir Humphrey Appleby (of “Yes Minister” fame) would surely have been proud of the gloriously opaque press release issued after the meeting: “The Council has deliberated on the issues and challenges of crypto assets and currency and was briefed about the deliberations in the high-level committee chaired by the Secretary of Economic Affairs to devise an appropriate legal framework to ban use of private crypto currencies in India”. That rarest of political beasts: a limp statement with a punch.

But what does it actually mean, and what does it mean in particular for the future of e-retailing in India?

The subcontinent’s lawyers are already enjoying a feeding frenzy on crypto currency regulation (more of that in a moment), so this type of woolly language is unlikely to stifle further legal challenges. What, for example, does “use” mean? Will it be acceptable to hold a crypto currency if you don’t actually use it? Will it be like having a gun under the bed with a vague intention of using it to shoot ducks out of season, or more like having a gun in a holdall on your way to rob a bank? Nobody knows.

What we do know for certain though is that India’s financial sector is unlikely to be comfortable with this level ambiguity in such a key policy area where, like their counterparts worldwide, the subcontinent’s banks have for some time been edging closer to accepting (and investing heavily in) a Blockchain based e-retail market, and crypto currencies are an integral part of the Blockchain platform. That’s why Bank of America’s Kash Rangan stated last month that Blockchain technologies will eventually be embedded into every software platform globally; and its why IBM and Microsoft already have Blockchain offerings on the market, and why in India the likes of Apurva Enterprises (a building supplies company lets remind ourselves) is following their lead and investing heavily in its Tradescrypt affiliate.

And its also why the Reserve Bank of India (along with everyone else) has been expecting the subcontinent’s Crypto Currencies Panel (“CCP”) to come up with a workable regulatory regime for the sector by its (self imposed) deadline of July this year. That’s why in February the Reserve Bank restricted future crypto dealings engagements in the firm belief that the CCP would have done something by the beginning of August. In fact it has done nothing and this bewildering inactivity seems to the real behind this week’s consignment of crypto fudge from the Financial Stability and Development Council.

But don’t bet against the fudge melting away as quickly as a Chequers Brexit.

First of all, the simple fact is that Blockchain and Crypto Currencies now have too much potential simply to be ignored which is the reason why IBM and Microsoft have been investing so heavily in the technology, and India alone has more than 6 Million crypto currency users: all of them ready and willing to deal with more or less whatever platforms these behemoths have to offer. The market is simply way bigger than any quick political fix (whatever its flavour), and as Milton Friedman so ineloquently put it: you can’t buck the market.

Secondly, the very public failure of the CCP to come to a conclusion by July rapidly caught the attention of all those voracious lawyers (acting for Indian Crypto Exchanges), and they’ve brought an action before the Supreme Court asking for an order that the Reserve Bank of India should “clarify its position”. The Court ordered last week that the Minister should file an affidavit doing just that by the end of next week. This is most likely the real reason behind the statement issued from New Delhi.

The deliberate vagueness of the statement’ language seems not so much intended to be market resilient as to buy the Government more time to arrive at a final position before going back to Court. Not only that, the more astute observer may already have spotted that the Securities and Exchange Board of India has now dispatched delegates to Japan, Switzerland and the United Kingdom to study and make recommendations on regulatory structures relating to cryptocurrency trading. Why do that if crypto currency trading is never going to happen?

And finally, just take a look at the sheer scale of e-retail markets on the subcontinent: projected to have more than 50 Million trading participants by the end of 2018 and with sales in the two weeks running up to Diwali alone running at over $2.3 Billion. Between them Amazon and Flipkart have spent £54.01 Million on Diwali related promotions, Amazon has invested $79.8 Million this quarter in its digital payment arm and Flipkart invested $65.8 Million in its own payments wing (PhonePe). Amazon has also sold well over 1 Million mobile devices in India in the last six months, not just to the urban middle class but in rural and semi rural areas as well, helping fuel the rise of an entirely new electronic economy on an entirely new scale. As Milton Friedman would probably say, that’s an awful big market to buck.

It might just be unbuckable…

Nobody understands this market potential quite like Red Ribbon, which has placed India at the heart of its investment strategies since the company was founded more than a decade ago. Drawing on a pool of established expertise on Indian market conditions, Red Ribbon Asset Management offers a unique opportunity to share in that potential.

Red Ribbon CEO, Suchit Punnose said:

Whatever the virtues or otherwise of Bitcoin, and everyone has their own views, the role crypto currencies will have to play in the development of future Blockchain technologies is something regulators simply cannot ignore. And that applies particularly to India, where the opportunities offered by its rapidly expanding e-retail markets are likely to be exponentially greater than in most other economies worldwide. Together Blockchain and e-retail combined are a formidable agent for growth.

So I have no doubt that Blockchain technologies will ultimately change the way we all do business: it’s a question of ‘when’ and not ‘if’. And on that point I agree with Kash Rangan of Bank of America, at some stage these technologies will become embedded in every software platform so India is now in an almost unique position to take a lead in its global regulation. I will be looking with interest to see what happens next…

 

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An Ambition for Growth: The Roots of India’s Economic Miracle

December 10, 2018

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Currently locked in a peculiar species of death roll with her backbenchers, Theresa May still (to her credit) seems intent on securing an orderly exit from the EU by 2020, but most economic commentators are forecasting a long term decline in UK GDP however “soft” the exit terms might be. Price Waterhouse for one are predicting that within a decade of exit, by 2030 the United Kingdom will have fallen to tenth place in Global GDP, behind Mexico and Indonesia and a whisker ahead of Turkey and France (which has a certain irony in the circumstances). And the same survey predicts that by 2030 India will have risen to third place in the global league, treading hard on the heels of China and the United States in first and second place respectively. But unlike the former mother country there is no suggestion that the subcontinent’s remorseless ambition for growth will lose any of its momentum over the course of the next half century.

China had better watch out…

The subcontinent’s economic ambition has been powered by a combination of progressive (some might say revolutionary) economic policies on the part of Prime Minister Modi’s Government (think demonetisation), coupled with a burgeoning and increasingly middle class population fuelling an unprecedented surge in consumer demand. But in a subtle and complex take on that dynamic, McKinsey this month published a fascinating report concluding that India’s explosive growth has just as much to do with interlocking trends in agriculture, urbanisation and mobility.

Take the first element in that triumvirate: agriculture. For decades now (at least the last thirty years), India has pursued an aggressive policy of agricultural self-sufficiency which has not only made the farming lobby one of the most powerful political forces in the country but has also delivered growth rates in the sector that are the envy of most of its near neighbours (indeed, the envy of most farmers anywhere in the world). But despite this, as McKinsey also point out, Indian agriculture still faces a spectrum of uniquely local challenges: severe water shortages alternating with devastating monsoons, combined with often antiquated supply structures and what McKinsey quaintly call a “limited exposure to high productivity practices”: in other words, a lack of investment in the latest farming technology.

That’s where the subtlety comes in…The Indian Government has re-calibrated its agricultural policy to shift the emphasis away from output targets, replacing them with a system of local subsidies designed to buttress farmers’ income (a policy that roused the never less than exuberant President Trump to bring proceedings against India again before the WTO). It was a smart shift in direction too because the new policy will almost certainly double agricultural wage rates by 2022 and, in a characteristically Keynesian frame of mind, the Modi Government are betting that with more money in their pockets India’s farmers will now start investing more in new technology. It can’t do much to stop monsoons but it can, as McKinsey would no doubt put it, “increase exposure to high productivity practices”.

That same factor feeds into the second limb of McKinsey’s triumvirate: urbanisation. More than 200 Million of India’s rural population are expected to move into its urban conurbations over the next 15 years and for those with the instinct to move rather than invest locally, improved agricultural subsidies are giving them a store of money to do it with. And, the Modi Administration is playing to its strengths on this too with a new Smart Cities Mission designed to meet the additional, affordable housing required to cope with resulting surges in demand, reducing urban pollution levels and increasing resource productivity and economic development through enhanced infrastructure programmes. You don’t need to look any further to find the real roots of India’s economic miracle.

And what about mobility: the third element of the McKinsey triumvirate? Well, that’s coming along nicely too with India now expected to become the world’s third largest passenger vehicle market by 2021. It’s not just that the subcontinent offers the same, parallel opportunities and challenges as other western and developing markets, it is offering them with a turbo charger attached. Many of those 200 Million people who are moving from village to town over the next 15 years will want (and get) a car, paying for it with the increased wages earned from working on all those new infrastructure projects; and their family and friends who stayed in the country and invested in new agricultural technology will probably want (and get) a new car too. You need to keep up with your cousins in town!

That, in essence, is what we mean by an interlocking economic structure, and it’s here that we can find the real roots of India’s explosive growth. Just wait to see what happens next…

Nobody understands that potential for growth better than Red Ribbon Asset Management, which has placed India at the very heart of its investment strategies since the company was founded more than a decade ago. With an unrivalled knowledge of market conditions on the subcontinent, Red Ribbon offers a unique opportunity to share in that vast potential.

Red Ribbon CEO, Suchit Punnose said:

At Red Ribbon we are very proud to have been playing our own part in India’s economic resurgence over the last decade, investing in just the kind of projects that are at the heart of the interlocking triangle of growth mentioned in the article: everything from the modular construction technologies now being developed by Modulex so as to deliver affordable housing at the pace demanded by the subcontinent’s urban expansion, through to innovative sustainable energy infrastructure investment. And to see India now firmly established at its place on the economic top table, uniquely well placed to move further forward still is, of course, a particular source of pride for us.

We look forward to continuing to play our part in India’s future, participating to the utmost in the opportunities the subcontinent’s explosive growth has to offer and at the same time providing above market rate returns from our investors in what I am convinced will continue to be one of the world’s most exciting markets for many years to come.

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Interest Rates: What the Reserve Bank of India can teach the Bank of England

August 16, 2018

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Inflation, as it happens, is also attracting considerable attention not only on the Monetary Policy Committee of the Bank of England but also at the Reserve Bank of India which anticipated recent events in Threadneedle Street by raising its own interest rate to 6.5%. That came hard on the heels of a hike of 0.25% in June, which was the first rate increase on the subcontinent for more than four years. And given the two Central Banks now appear to be moving in ever closer lockstep on the issue, it’s no surprise that the smart money in the City is on Urjit Patel to replace Mark Carney as Governor when the first overseas national to hold the position returns home next year to spend more time with his money. Urjit Patel is currently Governor of the Reserve Bank and his own three-year term ends next July. Mark Carney’s time is up next June, so If nothing else, it looks like good timing.

And should Urjit Patel eventually end up in the hot seat he could do worse than draw some lessons from the underlying reasons that are driving inflationary growth in India at the moment, which stand in stark contrast to those troubling the former mother country. As a seasoned economist he might also remind himself of the old adage that there is no inflation in a graveyard: consumer demand can only fuel inflation if consumers have something to spend.

The UK’s headline inflation rate of 2.4% is barely driven by consumer spending at all for the simple reason that domestic consumers have very little surplus income to spend. Such pressure as there is on that front is driven rather by the biggest rise in UK consumer borrowing since the global financial crash of 2008. Of much greater importance is the increased cost of imported goods due to a weakened sterling coupled with (inevitably) ongoing fears over Brexit, so the decision to raise rates last week had much more to do with bolstering the value of sterling going forward (although, in the light of market movements in the aftermath of the announcement, that may itself be something of a triumph of hope over experience).

Now lets take a look at India.

Last’s week’s 0.25% rate rise on the subcontinent was primarily a response to rising crude oil prices on international markets. India has spent 12% more on imported oil since April this year, reflecting an upward pressure in key prices and, to a certain extent, a 3% depreciation in the value of the rupee against the dollar over the same period (dollars being, of course, the lingua franca of oil). But that’s nothing in itself to be worried about because there’s a reason why India is buying all this extra oil: it is (quite literally) fuelling the economic expansion which is now expected to see India’s GDP grow by 7.25% this year; and with limited reserves of its own the subcontinent is bound to be vulnerable to adverse price movements on global markets. That is a necessary cost of its startling economic success.

And as for the other element of the inflation equation, we hardly need reminding of India’s unprecedented surge in consumer demand. With the fastest growing population on the planet, an increasingly younger demographic and steadily rising rates of average income, very little of this is leveraged with debt (unlike the UK) but India’s annual consumer inflation rate still hit 5% in June (the eighth month in a row that it has exceeded the 4% medium term inflation target). But again, that is hardly a cause for significant concern either, bearing in mind that the RBI target has an upper tolerance of 6%, which is above the current inflation return. After all, there’s no inflation in a graveyard.

So unlike the Bank of England, the Reserve Bank of India (although pursuing a similar monetary policy) has in reality simply trimmed its inflation projections rather than run scared of them, confident in the knowledge that it is not only still working within existing tolerances but also harnessing unprecedented economic growth. That’s why it has been able to maintain its well-rehearsed policy of neutrality: encouraging growth and keeping inflation under control. Urjit Patel might not be able to take that particular policy with him if he comes to London next year.

Red Ribbon Asset Management has placed India at the heart of its investment strategies since the company was founded more than a decade ago, and nobody understands the subcontinent’s potential for growth better than Red Ribbon. With an unrivalled knowledge of market conditions on the subcontinent, the Red Ribbon Private Equity Fund offers a unique opportunity to share in the potential of the fastest growing large economy in the world.

 

Red Ribbon CEO, Suchit Punnose said:

I had heard that Urjit Patel was being tipped to take over as Governor of the Bank of England when Mark Carney moves on next year, and for my part I think he would be an excellent choice. Certainly it would be a matter of great pride for every Indian to see him take the helm and build on his policy experience on the subcontinent, perhaps even (as the article points out) adding some of the subcontinent’s current economic sparkle to the UK economy.

And it is also interesting to note the radically different reasons for the Central Banks in each country making virtually the same monetary policy announcements in virtually the same week. Inflation is not always an enemy of sound economic growth, and in India’s case it seems rather to be an inevitable product of its own success. As the article says, there’s no inflation in a graveyard.

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The Best Exits: Innovations in India’s Private Equity Market

August 16, 2018

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How do you spot a Private Equity Investor at the Opera? He’s the one scouring the lobby for the best exit.

You’ve probably heard that one before. Its an old joke but still speaks to a fundamental truth about all private equity strategies: whilst looking resolutely to the long term (often more than ten years ahead), as soon as the initial investment is made Private Equity Investors will also be searching for the best exit strategy, and in today’s markets that usually means an IPO or a Merger. So next time you’re welling up with emotion at Turendot, keep an eye out for anyone scribbling one or other of those magic words in their programme: they’ll probably be managing a Private Equity Fund.

And given India is now the best performing Private Equity market in the world, it should come as no surprise to learn that the subcontinent is also at the cutting edge of the latest and most innovative of these long term exit strategies.

Take, for example, the Platform Acquisition model: not in itself a novelty, but now being given a fresh lease of life in India. In its new guise the strategy focuses on selected market quadrants and brings them together to create synergies for a targeted return as opposed to more traditional growth through capital infusions into the platform company itself. Think Indian IT and the subcontinent’s burgeoning consumer market, then think Flipkart and you’ll get the idea. Its an intelligent version of the old fashioned roll up strategy where multiple small companies in the same or complementary sectors are acquired or merged prior to being rolled up for exit, and in its new format it has made Private Equity a real force for consolidation and growth within the Indian economy.

Warburg, Pincus and KKR have all launched Platform Acquisition models for projects on the subcontinent, with chosen sectors including business services, media, hotels and hospitality all of which are, of course, already high growth areas. Mid market hospitality in particular is going through something of a renaissance at the moment with this year’s IPO of Lemon Tree Hotels being oversubscribed by a factor of 1.19 and Eco Hotels continuing to make strong inroads into the environmentally friendly segment. Everstone has a Food Services Platform following its acquisition of Modern Foods through which it has subsequently gobbled up Cookie Man; and Goldman Sachs, never slow to spot a trend, has a new Business Services Platform on the subcontinent, appropriately named First Meridian and focusing on HR and staffing companies for later roll up. Sutra HR had better be watching their backs…

Head of M&A at EY India, Ajay Aroa sums it all up nicely: “ The platform acquisitions and their roll ups have made private equity investors the main consolidation force in a number of India’s high growth sectors, standing to benefit equally from growth as well as multiple arbitrage”.

That last point is also interesting (and incontrovertibly right): smaller aggregated acquisitions, characteristic of those completed through a Platform Acquisition model, are very often delivered at a comparatively low exit multiple, giving the platform owner an enhanced arbitrage opportunity. Bearing in mind Blackstone’s private equity investments in India have delivered annualised returns of 30% since 2011, PE Platform Investors will usually lift the aggregate multiple by leverage or arbitrage (or both) in order to compete… and at the moment they’re competing very well indeed.

Red Ribbon Asset Management has placed India at the heart of its investment strategies since the company was founded more than a decade ago, and nobody understands the subcontinent’s potential for growth better than Red Ribbon. Benefiting from an unrivalled knowledge of local conditions and more than a hundred local advisers reporting from some of India’s fastest growing markets, the Red Ribbon Private Equity Fund offers a unique opportunity to share in that potential.

Red Ribbon CEO, Suchit Punnose said:

As any Private Equity investor will tell you, nothing is more important than having a clear and deliverable exit strategy, set out in detail at the earliest opportunity. Especially so as most funds will look to lock their investors in for an extended period, often for as long as ten years so that investors need to have a clear understanding from the outset of just how they will exit the fund to secure an optimal return on their investment. That used to be an issue in India where traditional family run companies were resistant to exit by private sale, but the subcontinent’s modern markets have now made the task a lot easier through the increased efficiency of IPO and M&A mechanisms: now, as the article points out, the two most favoured modes of exit for Indian companies.

I’m not surprised, either, to hear of the innovations currently taking place in the subcontinent’s private equity sector. After all India is the fastest growing Private Equity market in the world and it would be surprising if it should prove resistant to the innovative policies being rolled out elsewhere in the economy. You only need to look at the participants involved (KKR, Goldman Sachs and Blackstone) to get a feel for the underlying strength of the sector.

And of course I’m proud too that the Red Ribbon Private Equity Fund is part of this process. We will always be looking for the most exciting opportunities India’s markets have to offer, using the most innovative strategies available so as to deliver the best above market rate returns for our investors.

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National Defence Day: A New Era Of Indian Self Reliance

March 20, 2017

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In matters of Defence, it sometimes pays to wait and take stock.

From the perspective of this year’s National Defence Day Celebrations and two years on from the decade-long frictions caused by the Defence Ministry’s attempts to commission a new generation of fighter aircraft, MMRCA (that’s Medium Multi Role Combat Aircraft to you and me), you might be forgiven for thinking that a person of even average courage and conviction would hesitate long and hard before commissioning another round of Defence Spending.

Prime Minister Modi certainly thought better of it back in 2015 when he dodged the bullet (in a manner of speaking) by ditching MMRCA altogether and instead of ordering thirty-six new Rafale Fighter Aircraft, off the shelf from the French company, Dassault. But the Dassault deal was a very long time coming, final contracts were only signed in September 2016 and whilst the new Fighters are undoubtedly an important part of Indian Air Defence capability, they still fall short of the deployed strength required by the Indian Air Force which requires between forty-two and forty squadrons by the late 2020’s, all of which makes an additional procurement round more or less inevitable.

But of course, a lot has happened in India since the Dassault Contracts in 2015. For a start, India is now the fifth largest economy in the World and the fastest growing large economy on the Planet. India also now has the Fifth Biggest Defence Budget in the World; bigger than

Russia (which it overtook this year) and it is projected to overtake the United Kingdom in 2018 with an eye-watering spend of $56.5 Billion. It is sitting at the top table now.

So why buy off the shelf again? Why not instead treat the current necessity of a fresh military procurement round as an opportunity to showcase the strengths of the Indian economy and its new, much improved technological base? In short, in this resurgent, burgeoning economy on the Subcontinent, isn’t it about time for MMRCA Reloaded?

And in a word, the answer from the Indian Government is “yes”.

Prime Minister Modi’s Cabinet announced late last year an enormous $25 Billion procurement round to acquire no less than 150 new generation fighter aircraft, and as part of the “Make in India” Initiative this new, single engine fighter will be built on the subcontinent, not bought off the shelf from abroad. And not only that, the Indian Navy also announced last month that it plans to acquire fifty-seven new carriers based aircraft and these too be built in India. How times have changed since 2015: Lockheed, Boeing and the Eurofighter Consortium are all queuing up to get involved in the project.

And it’s worth pausing for a moment to think about the wider implications of the initiative as well.

The Government launched the Make in India campaign back in September 2014, and at the same time Investment Regulations were relaxed so as to allow 49% Foreign Direct Investment (FDI) into the Defence Sector (previously there had been a cap on FDI of 26%); the timing of this move was no coincidence: it was all part of the government’s concerted policy of bringing down the level of military imports (contracts such as the Dessault Fighter). And the new policy had an almost immediate impact because between September 2014 and November 2015 the Indian Government received no less than $18 Billion worth of new proposals from foreign companies interested in manufacturing electronics in India. The Subcontinent became a global manufacturing hub and there was a marked step-change in its technological expertise on the ground demonstrated graphically, for example, by the fact that the number of smartphones made in and shipped across India had increased to 24.8% from 19.9% in the second quarter of 2015 alone.

This latest, round of Defence Spending, breathtaking in its size and scope should be considered in that context; without a radically improved, expert pool of technological talent on the subcontinent, it would simply be inconceivable that the Ministry of Defence could have committed itself to manufacturing the next generation of its strike aircraft in India; and without the Make in India Initiative and its fiscal relaxations on foreign direct investment, it would not be realistic to expect companies of the standing of Lockheed, Boeing and the Eurofighter Consortium to be lining up to take part in the program.

India has come a long way in two years. Sometimes it pays to wait.

Red Ribbon CEO, Suchit Punnose said:

I expect a lot of us, I watched the decade-long debate over the MMRCA Strike Fighter Project unwind into recrimination and an off the shelf deal for the French Rafael Strike Fighter in 2015; and as a lot of us have long suspected since then, the ongoing procurement requirements of the Indian Air Force and Navy have made it inevitable that a fresh approach to a further procurement program would become inevitable once this sense if expedient decision had been taken by Prime Minister Modi two years ago.

Well, the time for that fresh approach is now; and for India, it couldn’t come at a better time, with its resurgent economy firing on all four cylinders. The whole procurement exercise has proved to be an object lesson in how the Country has moved forward so quickly from once buying off the shelf overseas, now to manufacturing essential Defence hardware for itself as part of the “Make in India” Initiative, relying on a technology base and a level of home grown expertise on the Subcontinent that has made India a World Class Manufacturing Hub in the intervening years.

So it seems especially appropriate that we should be able to celebrate that success now; on National Defence Day.

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