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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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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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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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Better Smart than Big: India’s Eco Hospitality Sector

December 03, 2018

Asset Growth(41), BRIC(27), Eco Hotels(23), Ecological(14), Economic(31), Economical(15), Economy(48), Emerging(42), Environment(23), Fast Economic Growth(46), Foreign Direct Investment(34), Fund Management in Gibraltar(27), Government(18), Growth Market(44), Growth Markets(55), Impact Investment(35), Infrastructure(20), Invest In india(50), Investment(46), Red Ribbon(42), Red Ribbon Asset Management(50), Red Ribbon Fund Management(46),

The problem with global conglomerates is that they have global reach but monolithic thinking. Look how long it took Facebook to respond to high profile data breaches, with the hardly media shy Mark Zuckerberg virtually disappearing from the ubiquity of his own platform for weeks on end. Think of IBM: slow to the point of near extinction in responding to software innovations in the market, and poor old Kodak, slow to the point of actual extinction in meeting challenges posed by a blizzard of new, digital based technologies. So it should be a sobering thought for our current crop of global empire builders that big certainly doesn’t always best, because all too often great size comes with an inbuilt decision making stasis …in business, it’s always better to be smart.

Even so the thickest commercial hides can sometimes let in a little oxygen, which is why economists still like to look at the interesting conundrum of scaled decision making: big companies deluded into thinking they are fleet enough of foot to react on time to critical and fast moving trends, rather like an elephant finding a discarded pair of tweezers and thinking they must be good for something.

The latest example is Hilton Hotels, which this month unveiled its “Travel with Purpose Campaign” designed to reduce the group’s global carbon emissions by, wait for it, reusing old bars of soap left behind by its guests. Good luck with that: the Hilton Hotel chain on the subcontinent has properties with in excess of 1000 rooms pumping out as much carbon as a Victorian glue factory, so you might be forgiven for thinking the odd bar of soap is unlikely to make much of a difference. But the Hilton monolith is simply reacting (monolithically) to the unsurprising revelation that most of its guests are now placing environmental concerns at the top of their list when deciding where to stay. Hilton knows this because it conducted an expensive survey of 72,000 of its guests in May this year.

Of course it could have saved its hard earned cash and had a look instead at earlier newsletters on this site (amongst other places): sustainability concerns have been a key trend in the Indian Hospitality sector for at least the last decade and are becoming progressively more important. Hilton’s laborious, too little too late response is yet another example of big not being better. Big, in this case, is positively bad.

The companies that are instead best placed to make the most of eco trends are not operating out of densely occupied concrete blocks. They are strategically positioned in India’s mid market hospitality sector, with Lemon Tree Hotels and Eco Hotels being prime examples: smaller in scale and with sustainability ingrained into the fabric of their buildings (rather than in last minute memoranda urging staff to pick up discarded soap). As a result Lemon Tree Hotels is currently valued at 17 times EV/EBITDA and since completing its successful IPO in March of this year the company’s shares have risen in price by an impressive 28 per cent.

Both companies find themselves carried forward by a relentlessly upbeat market outlook, typical of which is JLL India: “The hospitality industry is witnessing a new buoyancy” and Anarock Capital, where Shobbit Agarwal had this to say: “Stocks of listed hotel companies are on a new high due to improving fundamentals increased occupancy levels, higher revenues and average room rates seeing 5 to 6 per cent year-on-year growth”.

Quite so, we don’t need an expensive survey to tell us that.

And it also has a great deal to do too with a recent surge in India’s domestic and overseas tourist numbers as well as an increasingly affluent middle class demographic prepared to put their money where their heart is…Hilton Hotels might take note.

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:

I’ve always believed in the essential flexibility and virtue of smaller business platforms, capable of responding quickly and effectively to market opportunities as well as medium term market trends. Because, to paraphrase Keynes, over the medium term a business that finds itself rooted in a fixed strategy can also all to often find itself dead. Just look at the object lesson provided by the once all powerful Kodak Corporation.

And the sheer pace of change and market innovation in the subcontinent’s hotel and hospitality sector at the moment makes that lesson all the more compelling. Mid market groups like Lemon Tree Hotels and Eco Hotels are quite simply better placed to respond successfully to rapid innovation and key demographic changes. Not least because they have both been positioned from the outset to anticipate a sustained and progressive move towards sustainability based tourism and business travel. Sustainability is built into their DNA.

That’s why I’m particularly proud of the part Red Ribbon has played in founding Eco Hotels and helping with its strategic development, anticipating exciting developments in Indian markets capable of generating above market rate returns for our investors. So, whilst like the Hilton Group, I’m sure Eco Hotels will be encouraging guests not to waste soap, the company has a lot more to offer in the future.

 

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Affordable Housing for India: A Perfect Storm of Opportunity

December 03, 2018

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Affordable Housing for India: A Perfect Storm of Opportunity

Mumbai’s skyline has, of course, been transformed beyond recognition over recent years, but its glass pinnacles are well beyond the reach of all but its wealthiest residents. So you need to look closer to the earth to find the true driver behind the subcontinent’s resurgent real estate sector.

India’s increasingly youthful population is moving out of the countryside at an increasing rate in search of better work, pay and living conditions and this is precisely the demographic the Affordable Housing Policy is designed to appeal to, because the dream of having a home (or a flat) of one’s own resonates like nothing else with this new wave of discriminating voters on the subcontinent…and nobody knows that better than Narendra Modi. His Government has aggressively pursued legacy policies on housing with the introduction of a raft of new tax incentives over the course of the last two Union Budgets, including giving infrastructure status to qualifying affordable housing, offering developers increased tax concessions and providing buyers with a range of fiscal incentives including subsidised interest payments.

And it’s not just voters who are being energised: investors are responding positively too in increasingly ingenious ways. For example, because banks in India aren’t allowed to finance land acquisitions the Private Equity Fund KKR has moved into the sector to offer development funding directly to contractors, taking an equity stake in the completed project. In what might be taken by some as a statement of the obvious, Sanjay Nayar of KKR India pointed out that “with the right project and partners, there’s good money to be made”.

There is indeed Mr Nayar.

Chris Wood of Citic Securities perhaps put it a little more eloquently: “Affordable housing in India remains one of the most straightforward bull stories in Asian equities. There will be an acceleration in economic activity in India in the coming 18 months driven by housing.”

But there is, of course, at least one (more or less hidden) difficulty with all of that. Given such a voracious and burgeoning consumer appetite coupled with capital market ambition and expansionist government policies, where are all these new homes going to come from? As we have noted previously on this site, stoking up such high levels of demand means India is now committed to building 856 new homes every hour between until 2050. Traditional construction technologies simply aren’t up to that kind of challenge, which is why commentators (including KPMG India’s Director of Real Estate Neeraj Bansal) have pinpointed Modular Construction as the single most important innovator in the sector.

By prefabricating units at scale and off site, Modular Construction is capable of delivering affordable housing on the required scale and at a reasonable cost: three times quicker and half as expensive as traditional construction methods. It is perfectly positioned to meet the demands and opportunities being created by this perfect storm in India’s real estate markets.

As Mr Nayer would probably say over at KKR: “there’s good money to be made”.

Modulex Construction is the World’s largest and India’s first Steel Modular Building Company, working to meet the Challenge of India’s urban housing shortages in a practical and focused manner. It was established by Red Ribbon to harness the potential of India’s dynamic and fast evolving markets, delivering exciting opportunities for investors. Because, when it comes to investing on the subcontinent, nobody knows India and its markets better than Red Ribbon.

Modulex Modular Buildings Plc is the World’s largest and India’s first Steel Modular Building Company, working to meet the Challenge of India’s urban housing shortages in a practical and focussed manner. It was established by Red Ribbon to harness the full potential of India’s dynamic and fast evolving markets, delivering exciting opportunities for investors because, when it comes to investing on the subcontinent, nobody knows its markets better than Red Ribbon.

Red Ribbon CEO, Suchit Punnose said:

For me, the key determinant of exponential growth in India’s real estate sector over recent years is the combination of an unprecedented growth in the subcontinent’s population and a rapid trend for its urbanisation: largely, as the article rightly points out, a product of this rapidly expanding population becoming progressively more youthful and more affluent. In time honoured fashion, India’s younger demographic is streaming from village to city with money in its pocket (in the hope of making more).

This is the demographic that Prime Minister Modi has so successfully appealed to through his Government’s re-energised Affordable Housing Programme: the other key factor driving growth in the sector. As with some of his other radical initiatives, the scale and scope of the programme has at times been breathtaking, but in truth it has to be to meet the sheer scale of the challenge.

And when it comes to delivering a workable solution to that challenge it seems to me, as most expert commentators now recognise, that the attraction of Modular Construction is simply inescapable. No other technology offers the pace and scale of delivery needed to meet India’s housing needs. 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 a vital element in meeting the challenges as well as making the most of the opportunities currently being presented by the subcontinent’s markets.

But none of that should beguile us from forgetting the sheer scale of the housing challenge India currently faces, in common with other leading global economies. Traditional construction technology simply can’t deliver to the scale and pace required by projected demand on existing governmental programmes. No wonder then than Modular Construction is a policy priority for Prime Minister Modi’s Government. It’s only a question of time before others follow suit…

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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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India’s urban challenge and Modular Construction

August 16, 2018

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We must run as fast as we can just to stay in one place… and if you want to go anywhere we must run twice as fast as that.” (Alice in Wonderland).

As well as having an engaging smile, indeed sometimes only an engaging smile, the Cheshire Cat’s advice to Alice demonstrated wisdom beyond his nine lives. We would be well advised to remember it when considering the real estate challenge facing India’s economy as it comes to terms not only with the fastest growing population on the planet but also a radically increased urban population. Mumbai and the New Delhi Conurbation are already creaking at the seams, so staying in one place is no longer an option: now we need to run twice as fast to get anywhere.

And as we have commented previously on this site, when it comes to sheer speed of delivery Modular Construction will always have the upper hand over traditional construction techniques, making it singularly well suited to meeting the demands of India’s rapidly expanding population. Modular units are pre-built offsite in a controlled environment where the weather matters less and logistical barriers barely matter at all: think about building anything from scratch on site in Downtown Mumbai in the middle of summer and you’ll get some idea of the problem. Just in time supply chain efficiencies, including progressive stacking of modules on site, also then ensure maximum speed of final delivery without any of the “dead time” delays frequently associated with traditional construction methods.

But how does that all work out on complex construction projects? Using Modular Construction to create a small block of flats is one thing, but what about a 100-room Hotel?

Well, as it happens, that’s not a problem either.

The Marriott Hotel Group decided last year to adopt modular construction technology on some of their newest hotels and other major and mid sector hotel chains have been following suit with projects ranging from four star hotels through to boutique eco hotels. Marriott kicked off its initiative with a commitment to build 50 hotels using prefabricated guestrooms and bathrooms as well as a 97 room signature hotel entirely constructed with modular technology (and, take note, completed two months ahead of schedule). As their International Chief Development Officer, Eric Jacobs put it: “Construction is the next frontier for innovation and modular technology is leading the wayBy working with our modular partners we can open hotels faster, put associates to work earlier and generate revenues sooner”.

Quite so…

And its not just hotels either: modular construction is currently being used across the subcontinent to deliver student housing, hospitals and public buildings of all shapes and sizes. Getting just where India needs to be… by running twice as fast.

Red Ribbon played a key role in setting up Modulex Modular Buildings, recognising the company’s outstanding potential to deliver above market rate returns for investors through its ability to tap into high demand levels in Indian real estate markets. The company provides an exciting opportunity for investors to take advantage of this key trend in the fastest growing large economy on the planet.

 

Red Ribbon CEO, Suchit Punnose said:

I was interested to read about the Marriott Hotel initiative because it deals with a misapprehension that I sometimes come across, that modular construction is appropriate only for smaller scale projects. In fact nothing could be further from the truth. From my own work on behalf of Modulex on the subcontinent, I know that this fascinating and innovative technology is equally at home on major construction projects as well including, as the Article says, Hospitals and Schools. I’m convinced the technology has a major part of play in meeting the huge challenges currently facing India’s real estate markets.

And as a matter of interest, Marriott certainly wasn’t the first company to enter the market with a modular construction hotel: Red Ribbon’s own Eco Hotels have been doing that since the company’s inception and I’m very proud of the part we’ve played in its growth: because at Red Ribbon we don’t just believe in the theoretical value of modular technology, we’ve been using it for years.

 

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No Carillion for India: The Subcontinent’s Tough New Audit Regime

August 16, 2018

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English Law requires an Auditor to be a guard dog not a bloodhound, and that’s why Carillion collapsed in a Multi-Billion Pound insolvency with KPMG’s partners left wondering how to spend their bonuses while they wait to give evidence the House of Commons Finance Committee. But as with so much else over recent years, India’s Government is marching resolutely out of step with the former mother country: intent on improving matters by introducing stronger new audit regime and in the words of Finance Minister P.P. Chaudhary, strengthening the “fabric of corporate governance”. It seems India won’t have its Carillion moment.

The new National Financial Reporting Authority was set up in March with a brief to provide independent oversight of the audit profession and to “…investigate chartered accountants and their firms” (a wide brief on any basis) while doggedly digging into the conduct of even the largest listed and unlisted companies. In advance of the new Agency formally coming on stream, the Ministry of Finance served thousands of notices to companies thought to be falling short on minimum compliance thresholds, going so far as to deregister those who weren’t cooperating. In its sheer audacity the new initiative brings to mind the innovation and overarching ambition of Demonetisation.

There has in consequence been a marked uptick in auditor resignations: thirty so far in 2018, which is double the number for both full years 2016 and 2017 and clear evidence that the new initiative has teeth.

And as if that wasn’t enough, The Securities and Exchange Board of India (SEBI) is also getting in on the act: recently barring Price Waterhouse, Bengaluru from certifying company accounts for three years. Interestingly, it also mandated payment of penalties for wrongful gains (audit fees in other words). KPMG’s Carillion Partners might wish to count their blessings they weren’t working in Mumbai.

The emergence of this tougher regulatory climate is the best possible news for the Indian Economy, which has historically been dogged with horror stories of lax or minimal oversight. Businesses investing into the subcontinent simply cannot afford that level of uncertainty, and this at heart is the fundamental fact behind the reform programme. India’s rapidly growing economy needs a resilient regulatory structure and the innovations now on foot not only go to meeting that objective, they are likely to be the envy of many developed economies too.

Perhaps the new climate is best summed up by the Chairman of EY:  “There is heightened risk awareness now with much more effective external regulators. The new focus on governance has driven up the risk perception in the eyes of auditors and made them much more compliant in their approach.”

Exactly so…we don’t need another Carillion in Kolkata.

Nobody understands the fundamentals of the Indian economy better than Red Ribbon Asset Management, which has placed the subcontinent at the heart of its investment strategies since the company was founded more than a decade ago. Drawing on an unrivaled knowledge of local markets with an expert team of more than a hundred advisers working in India’s economic hot spots, the Red Ribbon Private Equity Fund offers unique opportunities to share in the potential of this, the fastest growing large economy on the planet.

Red Ribbon has been specialising in India’s Markets since the company was founded more than a decade ago, bringing an unparalleled expertise to its investment policies on the subcontinent with specialist sectoral advisers working from it’s Head Office in London in conjunction with more than a hundred local experts on the ground in the subcontinent itself. And by drawing on that body of expertise The Red Ribbon Private Equity Fund now offers an opportunity to secure above market rate returns in this, the fastest growing large economy in the World.

 

Red Ribbon CEO, Suchit Punnose said:

When Red Ribbon Asset Management started out more than ten years’ ago, I was often asked whether regulatory structures on the subcontinent were robust enough and resilient enough to give the level of assurance investors could expect from more developed markets, and in those early days it was sometimes difficult to give an unqualified yes.

But not anymore…India has changed so much over the intervening decade, with radical and cutting edge initiatives being introduced every year to push back against unacceptable business practices.

Anyone investing in India today can expect to find all of the regulatory certainties and safeguards they would expect from developed markets and the initiatives on audit referred to in the article (a crucial matter for any investor) are simply the latest element in that cycle, albeit a very important one. It is all part of the process that is making India one of the most exciting and fastest growing markets in the world.

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BSE Market Report: A Good Week for Tech Stocks, Hotels and Bears

August 16, 2018

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Beware the Chef who won’t eat his (or her) own food, but fear the food even more: on which basis the Bombay Stock Exchange (BSE) was certainly cooking this week. Tata Consultancy Services announced a second stock re-purchase in as many years, equivalent to some 2% of its overall share value, and India’s largest software exporter is now offering shareholders a premium of 15% on their holdings. So it was something of a statement of the obvious last week for its Chairman to characterise the move as “shareholder friendly in terms of dividends”. The Pope is still Catholic and Bears search for bosky restrooms.

But perhaps more importantly for the Bombay Stock Exchange at large, the move by Tata Consultancy is expected to prompt other listed companies to follow suit, with Cognizant already announcing last Friday that it is going forward with its own $600 Million accelerated share re-purchase programme, committing it to £2.7 Billion in repurchases by the end of next year.

These are not just isolated instances. The Indian Tech sector is white hot at the moment, with influential market commentator Amitad forecasting annual e-commerce revenue to rise by a staggering 20.2% by 2022, that’s $52 Billion or more than double the equivalent 2017 figure. Amitad’s Report also noted that 37% of the subcontinent’s population are now regular Internet users and 14% of them make regular on-line purchases, a figure, which is likely to grow exponentially over the next few years. Online consumers in India will constitute 90% of the population by 2020, and the subcontinent is already the second largest Internet user in the world, bigger than the United States … So Flipkart will be happy as well.

And it isn’t just IT and Tech Sectors that are looking strong at the moment. Taking advantage of an already resurgent Hospitality segment, FabHotels announced plans last week to open up new Hotels in fifteen additional cities across India (more than 1,000 units altogether). The company raised $25 million in 2017 through a Series B investment round led by Goldman Sachs and a spokesman for the company summed up its continued optimism this week:  “It is a sunrise moment for the Hospitality Sector. The mid market segment is driving the industry forward and more and more hotels will align with these new-age brands and improve consumer experience”.

The move follows the continuing success of EcoHotels, the World’s first carbon neutral hotel brand, which is also picking up business on the subcontinent at the expense of more traditional, chain operations.

Red Ribbon Asset Management Plc is the founder of Ecolodge, a key brand within the Eco Hotels Group, which has an ambitious program of developing a £1 Billion premium value hotel network, supporting sustainable living without compromising on standards of service delivery. Eco Hotels is modelled to operate from a low cost and high return platform, working to deliver above market rate returns for investors.

Red Ribbon has been specialising in India’s Markets since the company was founded more than a decade ago, bringing an unparalleled expertise to its investment policies on the subcontinent with specialist sectoral advisers working from it’s Head Office in London in conjunction with more than a hundred local experts on the ground in the subcontinent itself. And by drawing on that body of expertise The Red Ribbon Private Equity Fund now offers an opportunity to secure above market rate returns in this, the fastest growing large economy in the World.

 

Red Ribbon CEO, Suchit Punnose said:

It’s impossible to overstate the importance of India’s Technology Sector at the moment. In conjunction the subcontinent’s burgeoning, increasingly urbanised and much more sophisticated population, India’s technology revolution is going to be a key driver for future economic growth. As the article says, Flipkart will certainly be happy!

But we mustn’t forget that economic growth is continuing in other critical areas of India’s as well, and these same demographic trends are currently delivering unprecedented growth in the hotel and hospitality sector as well: and the mid market hotel sector in particular is showing strong potential for sustained growth.

I’m particularly interested in that because of Red Ribbon’s founding participation in the Ecolodge Brand, where sustainability and environmentally friendly factors offer unique attractions in today’s market. And like FabHotels’ Chairman, I certainly believe that those hotels which are aligned most closely to what he calls “new age brands” will ultimately deliver the best returns in the long run.

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